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Gold Technical Forecast: Gold Risks Deeper Correction- XAU/USD Levels

Gold Technical Forecast: Gold Risks Deeper Correction- XAU/USD Levels

Michael Boutros, Strategist

Gold Technical Price Forecast: XAU/USD Weekly Trade Levels

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Gold prices plunged nearly 4% off the monthly highs with a bearish technical formation last week threatening a deeper correction in the precious metal. That said, we’re on the lookout for an exhaustion low as price continues to contract within a multi-month consolidation pattern. These are the updated targets and invalidation levels that matter on the XAU/USD weekly technical chart. Review my latest Weekly Strategy Webinarfor an in-depth breakdown of thisgold technical setup and more.

Gold Price Chart - XAU/USD Weekly

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

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

Notes: In my January Gold Weekly PriceOutlook we noted that the XAU/USD, “pullback keeps the focus on the Fibonacci range between 1783-1829 – look for a near-term breakout to offer guidance with the broader outlook still constructive while above 1754.” The range broke to the topside with gold registering a high at 1853 before reversing sharply lower. The move saw gold mark an outside weekly reversal off the highs – the last four instances saw an average decline of roughly 13% off the highs. That said, its important to note that gold has continued to trade within the confines of a massive consolidation pattern off the 2020 highs with price continuing to contract into the apex of this contractionary range. We’re on breakout watch over the next few weeks.

Initial weekly support now rests with the 61.8% Fibonacci retracement of the December advance / 52-week moving average at 1791/94 backed by the highlighted slope parallel near ~1765. Ultimately a break / weekly close below the December lows / 61.8% retracement of the August advance at 1754 is needed to validate a break, with such a scenario exposing the 2021 lows / 38.2% retracement of the 2015 advance at 1682. Weekly resistance now stands at the high close at 1843 – a close above this threshold could fuel a test of the 2021 high close / 61.8% retracement of eh 2020 decline at 1903/23.

Bottom line: Gold continues to contact within the 2021 consolidation pattern and the focus is on a breakout in the weeks ahead. From a trading standpoint, we’re on the lookout for an exhaustion low ahead of the lower parallel IF price is indeed heading higher with a close above 1843 needed to suggest a more significant low is in place. Weakness beyond 1754 could be terminal for the bulls and would likely fuel an accelerated sell-off back towards the 2021 lows. It’s make-or-break here for gold in the weeks ahead. Keep in mind it’s a jam packed week of key data releases and central bank rate decisions- stay nimble. Review my latest Gold Price Outlook for a closer look at the near-term XAU/USD technical trade levels.

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 Retail Positioning - GC Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +4.64 (82.28% of traders are long) – typically bearishreading
  • Long positions are1.23% lower than yesterday and 22.61% higher from last week
  • Short positions are 11.64% higher than yesterday and 35.30% lower 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 less net-long than yesterday but more net-long from last week. The combination of current positioning and recent changes gives us a further mixed Gold trading bias from a sentiment standpoint.

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Previous Weekly Technical Charts

- Written by Michael Boutros, Technical 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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