Gold Recovery Grows After Critical Support Test

Gold Recovery Grows After Critical Support Test

Gold talking points:

Gold just put in its strongest weak since May of 2021, and that comes fresh on the heels of a very bearish drive that saw Gold prices test a critical spot of support.

The 2020 trend in Gold topped-out at 2089 and this was followed by a brisk pullback in late-2020 and early-2021 as the ‘reflation trade’ started to take-over. In March of last year, support showed at a low of 1673 and later that month, a higher-low printed just above that level. That led to a bit of recovery but sellers were hitting back a few months later, with another support test in this zone in August of 2021.

For almost a full year that price area remained unfettered but as the Fed’s rate hike plans have shifted into another gear this year, so did the downtrend in Gold, leading to another support test a couple of weeks ago around 1680.

Since that support has come into play, there’s been a behavior change in Gold and last week was the strongest week in the yellow metal since May of last year. Now, the reason for that shift is in US rates, as longer-dated Treasury yields are diving even as the Fed is hiking short-term rates. The big question at this point is one of continuation and this seems to tie in with the same macro questions that are pertinent in a variety of asset classes at the moment.

Gold Weekly Price Chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Shorter-Term

Coming into last week and just ahead of the FOMC, there was bearish potential in Gold, which could’ve allowed for another re-test of that key zone of longer-term support. As looked at last Monday, prices were holding resistance at a key spot on the chart, and over the next two days price action built in a descending triangle formation – often approached with the aim of bearish breakout potential.

The formation itself shows a horizontal level of support to go along with lower-highs, with a breach above the trendline invalidating the formation.

This is what happened last Wednesday, around the FOMC rate decision which notably also drove longer-dated US Treasury yields-lower.

Gold Four-Hour Price Chart

gold four hour chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Strategy Near-Term

At this point it seems like the main driver to near-term Gold price action the same dynamic pushing equities and FX, US Treasury Yields. And as long as we see this theme continuing, there’s a fundamental argument for trend continuation scenarios in Gold.

The bigger question is how Gold prices will fare with resistance levels as prices climb-higher on the chart. At this point, we’re seeing a bit of resistance play-in off of the 1785 swing-low. This was a major support inflection in early-May and that candlestick wick printed right around the key level, thereby highlighting its importance as support. A bit higher is the 1800 psychological level and there’s another confluent resistance zone, with multiple Fibonacci retracements in tight proximity plotted around the 1830 level.

If bulls can continue to push which again, will likely be related to a continued fall in yields, then the major spot of resistance sitting overhead is the same that I was looking at in early-June as a rising wedge formation had built, and there’s two Fibonacci levels in rather tight proximity around the 1880 level.

Gold Daily Price Chart

gold daily price chart

Chart prepared by James Stanley; Gold on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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Originally Posted on: https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2022/08/01/Gold-Price-Forecast-Gold-Recovery-Grows-After-Critical-Support-Test.html
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