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Gold Price Technical Outlook: Trying to Hurdle Resistance as USD Weakens

Gold Price Technical Outlook: Trying to Hurdle Resistance as USD Weakens

2020-10-06 12:30:00
Paul Robinson, Strategist
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Gold Price Technical Highlights:

  • Gold price trying to cross confluent resistance
  • USD started breaking support yesterday
  • High degree of short-term negative correlation (Gold vs USD)
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Gold price trying to cross confluent resistance

The price of gold is at a crossroad of resistance that if broken should pave the wave for a leg higher. There is a trend-line running lower off the August high that is in confluence with several lows formed since then. This happens to also be where the last major bull market high was created in 2011 at 1920.

A breakout into the 1930s will have 1973 (9/16 high), 1992 (9/1 high), and 2015 (8/18) levels coming into play. We will first need to see resistance hurdled for this to be the case. If we see resistance rejected, then watch the channel on the 4-hr chart. A triggering of the lower parallel is seen as confirmation that gold is ready to take another leg lower towards the recent low at 1848, and possibly worse.

Keep an eye on the dollar, the DXY currently has a very strong inverse correlation to gold of -0.96 over the past 20 days, meaning the two are essentially trading in diametrically opposite directions. As outlined yesterday, the DXY is (was) at a big spot – it has been broken since that writing. This is currently a tailwind for a gold breakout.

In addition to the impact on gold, traders should be mindful of this when managing simultaneous positions in both markets. For example, if long gold and short USD at the same time, these positions together are essentially one larger position and the extra risk should be accounted for.

All-in-all, gold is at an important juncture and we should gain some clarity on its direction very soon, likely providing a directional move.

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---Written by Paul Robinson, Market Analyst

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