XAU/USD Recovery Remains Vulnerable- GLD Levels

Gold prices tested a key pivot zone today on the back of the ECB interest rate announcement with price still holding within a near-term descending pattern. These are the updated targets and invalidation levels that matter on the XAU/USD charts this week. Review this my latest Strategy Webinar for an in-depth breakdown of this gold trade setup and more.

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Gold Price Chart – XAU/USD Daily

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

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

Technical Outlook: In my latest Gold Price Outlook we noted that, XAU/USD was, “trading just below the August highs and while the broader outlook remains weighted to the topside, the immediate advance remains vulnerable while below 1558 near-term.” Price registered a high at 1556.58 last week before reversing sharply with a break below the 1522/26 key pivot threshold, shifting the focus lower in gold.

The decline turned just pips from the August swing low at 1479 with today’s rally failing precisely in the 1522/26 resistance zone- a breach / close above this threshold is needed to alleviate further downside pressure. That said, the risk remains for a deeper correction here while below this level.

Gold Price Chart – XAU/USD 120min

Gold Price Chart - XAU/USD 120min - GLD Trade Outlook - Technical Forecast

Notes: A closer look at gold price action shows XAU/USD trading within the confines of a well-defined descending pitchfork formation we’ve been tracking off August / September highs. Gold rebounded off the lower parallel early in the week with the rally failing today at key resistance. Weekly open support rests at 1507 back by 1494/97 – a break lower would expose 1479 with the 61.8% retracement just lower at 1460. Ultimately a breach above the upper parallel / 61.8% retracement at 1536 is needed to mark resumption of the broader uptrend.

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Bottom line: Despite today’s rally, gold prices are still holding this near-term downtrend with the risk lower while within this formation. From a trading standpoint, we’ll favor fading strength while below the upper parallel with a larger correction to offer more favorable long-entries closer to broader trend support. Review my latest Gold Price Weekly 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

Gold Trader Sentiment - XAU/USD Price Chart - GLD Trade Outlook - Technical Forecast

  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +2.57 (72.0% of traders are long) – bearishreading
  • The percentage of traders net-long is now its highest since July 19th
  • Long positions are3.6% higher than yesterday and 35.3% higher from last week
  • Short positions are0.7% lower than yesterday and 32.3% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in Gold retail positioning are impacting trend- Learn more about sentiment!

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– Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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