Gold Breakdown Plunges into Downtrend Support

Gold Technical Price Outlook: XAU/USD Near-term Trade Levels

Gold prices have plunged more than 9% off the February highs with XAU/USD attempting to mark a third consecutive weekly decent. While a break below key technical support into the close of February does leave the broader risk lower in price, the sell-off is now testing downtrend support and leaves the immediate decline vulnerable into NFP’s tomorrow. These are the updated targets and invalidation levels that matter on the XAU/USD technical charts heading into the close of the week. Review my latest Strategy Webinar for an in-depth breakdown of this gold technical setup and more.

Gold Price Chart – XAU/USD Daily

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

Technical Outlook: In my last Gold Price Outlook we noted that the recent XAU/USD recovery was vulnerable and to, “Watch for topside exhaustion ahead of the upper parallel IF price is heading lower with a break below key support exposing the 100% extension at 1739 and the lower parallels near ~1700.” A decisive break below support at 1763/67 two-days later marked a decline of more than 3.8% into the March open with gold registering a low yesterday at 1739.

The sell-off is now testing downtrend support on building momentum divergence with the 61.8% Fibonacci retracement of the 2020 yearly range just lower at 1690– a break / daily close below this threshold would be needed to keep the immediate short-bias viable. Initial daily resistance stands at the median-line (currently ~1746) backed by 1764/67– look for topside exhaustion ahead of this threshold IF price is heading lower on this stretch.

Gold Price Chart – XAU/USD 120min

Notes: A closer look at Gold price action shows XAU/USD testing the lower parallels of the descending pitchfork formation we’ve been tracking off the late-January highs. Initial support rests at the March 2020 swing high at 1703 backed closely by 1690– look for inflection off this zone. Broader bearish invalidation now lowered to the upper parallel / February opening-range low at 1785. A break lower from here exposes 1671 and critical support at the 100% extension of the broader 2020 decline at 1648.

Bottom line: The gold breakdown is now testing the first major hurdle at downtrend support early in the month and we’re on the lookout for possible inflection into this region. From a trading standpoint, a good zone to reduce short-exposure / lower protective stops – rallies should be capped by 1767 IF price is indeed heading lower with a break / close below 1690 needed to fuel the next leg lower in price. Keep in mind, US Non-Farm Payrolls are on tap tomorrow- stay nimble into the close of the week here. Review my latest Gold Weekly Price Outlook for a closer look at the longer-term XAU/USD technical trading 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

• A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +5.85 (85.41% of traders are long) – typically bearishreading
• Long positions are5.39% higher than yesterday and 7.80% higher from last week
• Short positions are 23.37% lower than yesterday and 19.85% 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 further net-long than yesterday and 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, Technical Strategist with DailyFX

Follow Michael on Twitter @MBForex