Gold, XAU/USD Talking Points:
- Gold prices are ripping today after setting up in a bullish reversal formation coming into October trade.
- Buyers should remain cautious of chasing here as there’ve been a number of bullish moves in Gold that have reversed of recent.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
Gold prices are popping higher today, making a run at the 1800 psychological level. This comes as price action had built into a bullish reversal formation coming into the month of October, showing a falling wedge after support held at a key spot on the long-term chart. Falling wedges are often approached with the aim of bullish reversals and that’s continuing to fill in.
Gold Eight-Hour Price Chart
Longer-term, there’s another bullish formation that’s even had some recent context, as a bull flag remains on bigger-picture charts, and prices have been grinding support at the topside of the channel making up the flag.
This fact is somewhat softened by the numerous false breaks that have shown off of this flag already; but with price action holding the 38.2% retracement of the 2018-2020 move, the door does remain open to longer-term bullish scenarios and that can mesh with the shorter-term bullish scenario looked at above with the falling wedge formation.
Gold Weekly Price Chart
Gold Strategy: The Challenge
Gold topped out on August 7th of last year, putting in a bearish engulf on the Daily chart just after that all-time-high was set at 2075. Since then, there’ve been numerous fits and re-starts of the bullish trend with each ending up falling flat. Perhaps there’s been a shift in investor behavior where some are placing their inflation hedges elsewhere, such as Bitcoin. It’s likely at least somewhat related that the crypto space has really come to life since that high was set.
This doesn’t necessarily spell doom-and-gloom for Gold, but it is a fact worth keeping in mind that even as USD weakness reigned supreme in Q4 of last year, Gold prices remained very bearish. Gold finally bottomed at the end of Q1, right around the time that rates hit a fresh high in the US, and with rates receding in April and May, Gold prices got back on the bid for a test of the 1900 handle.
So, deductively, it seems that the biggest factor to the topside of Gold would be rates softening, which doesn’t appear to be a strong workable trend at the moment given how aggressively rates have moved up of recent.
For levels: Traders can follow tests of key resistance levels to get clues that buyers may be getting more and more aggressive. The first challenge would be a descending trendline connecting June and September swing highs, and this is right around the 1800 psychological level. A bit higher is a more pertinent level at 1834, which has already turned-around three different bullish advances. And if that gets taken-out, the 1900 level is in view and a break of 1920, the prior all-time-high before last year’s explosion would re-open the door for another run at all-time-highs.
Gold Daily Price Chart
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX