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Support for gold prices as XAU/USD breaks out

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Golden topics of conversation:

  • While stocks began to try to recover from last week’s selloff, even as U.S. yields remained high, gold continued to hold near recent lows.
  • Last week, the bears clearly bounced back after two weeks of bouncing around the open quarter of Q4. The 1680 level helped to burn the resistance but now the big question is whether the sellers will be able to continue the movement.
  • The analysis contained in the article is based on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education separation.

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The past few days have seen a consolidation of price action in gold, which is different from what we’ve seen in equities, which was a strong bullish response after the S&P 500 posted fresh lows last Thursday. US yields have remained relatively high, with the 10-year still in danger of breaking above the 4% mark. It doesn’t seem to be of much concern to traders at the moment, either S&P 500 and Nasdaq started the week with strong shares. But as seen yesterday, given the Friday sales that have become more common, abandoning this move on Monday is not so unreasonable.

However, gold prices have not seen much of a counter-trend movement recently. As I watched last week, the 1680 level remains a key place for gold and it helped hold the resistance down for the whole of last week, leading up to it Thursday’s CPI report at this point the bears pushed down for a new low. Support was shown at the level of 78.6% Fibonacci retracement the recent rebound movement that has since helped hold the lows; but bears trend line coupled with this support makes for a short term descending triangle which keeps the door open for short-term bearish growth breakthroughswith a view to 1635-1637, after which the two-year minimum takes effect.

Four-hour gold price chart

I prepared the diagram James Stanley; Gold on Tradingview

Golden alternative scenarios

I talked about it in gold articles recently, but a breakout strategy on bearish biases seemed like a particular problem. And countertrend moves like we saw develop in late September/early October could be vicious setups that last for a while, as the previous bounce was over $100 in just under a week.

For those looking to play bearish on gold, there are several potential resistance levels to work with. In the very short term, the Fibonacci level at 1666 is merging with the bearish trend line. Above that, the same 1680 level from last week is coming into the picture, and there is a short-term “r3” resistance zone at 1690-1694 that peaked early last week. When we see price action work above 1700 psychological levelthen we may be in for one of those deeper pullback scenarios.

Two-hour gold price chart

image2.png

I prepared the diagram James Stanley; Gold on Tradingview

Golden large image

In the bigger picture, the backdrop for gold remains bearish. At the end of the 3rd quarter, trade a double top began to fill and then it opened door for a larger image of the bear theme in gold.

The support zone that lasts from 1680-1700 has been in play for two years and thus it does not continue quietly into the night as we can see from the congestion shown on the recent breakouts along with the price bias to rollback and test for resistance in the previous support zone. This gives the impression that we have yet to see a capitulation, as the door has just begun to open for what could be an addition to the long-term bearish theme.

A break of the two-year low set in September opens the door for a move down to the 50% mark of the 2016-2020 key move of 1567. This price was also the 2019 high, so there is some historical reference there, and too.

Weekly gold price chart

image3.png

I prepared the diagram James Stanley; Gold on Tradingview

— Written by James Stanley, DailyFX.com Senior Strategist and Managing Director DailyFX Education

Connect with James and follow him on Twitter: @JStanleyFX

https://www.dailyfx.com/news/gold-prices-grind-support-as-xau-usd-gc-gld-breakouts-brew-20221018.html

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