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Gold Price Outlook: XAU/USD Rally Fails at Resistance– Bulls at Risk

Gold Price Outlook: XAU/USD Rally Fails at Resistance– Bulls at Risk

Michael Boutros, Strategist

Gold prices surged nearly 6% since the start of the year with XAU/USD now testing critical multi-year technical resistance. While the broader outlook remains weighted to the topside, the advance may be vulnerable near-term while below this critical threshold. These are the updated targets and invalidation levels that matter on the XAU/USD charts. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this gold price setup and more.

Gold Price Chart - XAU/USD Daily

Gold Price Chart - XAU/USD Daily - GLD Trade Outlook - GC Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; Gold on Tradingview

Technical Outlook: In my latest Gold Weekly Price Outlook we noted that the XAU/USD, “price breakout is now approaching targets into uptrend resistance - look to reduce long-exposure / raise protective stops on a rally into the upper parallels.” Price registered a high at 1611 today before reversing sharply and the risk remains for a deeper pullback while below pitchfork resistance / the 61.8% retracement of the decline off the record highs in gold at 1586- a breach / daily close above this threshold is needed to mark resumption of the broader uptrend targeting 1625. Initial daily support now rests a 1522/58 with broader bullish invalidation now raised to the objective monthly open / December 2011 low at 1520.

Gold Price Chart - XAU/USD 240min

Gold Price Chart - XAU/USD 240min - GLD Trade Outlook - GC Technical Forecast

Notes: A closer look at gold price action highlights today’s failed attempt to breach resistance with XAU/USD pulling back below the 1586 resistance zone on building momentum divergence. While it’s too early to rely on this downslope, we’ll use it as a reference for now with a break sub-1547 needed to validate a larger near-term correction in price targeting the median-line, currently nearly 1530s and 1522- both levels of interest for possible exhaustion.A break / close below the 61.8% retracement at 1508 would be needed to put the bears back in control- look for a bigger reaction there IF reached on a spike.

Bottom line: The gold rally has stretched into resistance at uptrend extremes and leaves the rally vulnerable while below 1586 – risk for exhaustion here. From a trading standpoint, a good spot to reduce long-exposure / raise protective stops. Look for topside exhaustion while below the weekly highs – ultimately a larger correction may offer more favorable long-entries closer to uptrend support.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Gold Trader Sentiment – XAU/USD Price Chart

Gold Trader Sentiment - XAU/USD Price Chart - GLD Trade Outlook - GC Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +2.03 (66.99% of traders are long) – bearishreading
  • Long positions are9.13% higher than yesterday and 12.82% higher from last week
  • Short positions are 5.67% lower than yesterday and 5.23% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Gold-bearish contrarian trading bias from a sentiment standpoint.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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