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Analysis

Gold technical analysis | Gold trades at resistance

BY Janne Muta

|August 31, 2023

Gold technical analysis - Gold has rallied to levels we expected it might move if the upside momentum is sustained. Our view was expressed in last week’s gold technical analysis report “If the market maintains the current upside momentum look for a move to 1943 or so.” Alternatively, we expected the market might move to 1903. The gold market low following our analysis was 1903.81.

It is important to note here that we do not give investment advice but rather provide traders with tools to make better trading decisions. Our analysis helps you to see where the key price levels are and provide you with two scenarios (bullish and bearish).

Then we make some technical analysis-based estimations on how far the price could under these scenarios move over the next few days. This allows you as a trader to decide whether it makes sense to either go long, go short, or stay in cash.

Remember, that staying in cash is also a trading decision. And, sometimes when the potential reward-to-risk ratio for a trade is not high enough staying in cash is the best alternative.

In this report we will focus on multi timeframe technical analysis but will also cover some of the fundamentals driving the price of gold. The next key risk events for this market are the US PCE release, the US unemployment claims today and the NFP and earnings data tomorrow.

Read the full gold technical analysis report below.

Gold technical analysis

Gold technical analysis weekly chart

Gold technical analysis weekly

The market has now reached the descending trend channel top, so what could be the bullish and bearish scenarios after the rally? Gold has indeed moved to a zone where the bear channel top and a resistance level (1945.74) coincide. The SMA (20) isn’t that far either.

Currently, it stands at 1951.60. This creates a confluence zone that could either slow the rally down as bulls need to work through the supply provided by the bears or maybe even turn the market lower again.

Gold technical analysis reveals the market is still in a weekly downtrend but the last leg down in this trend was relatively weak. Meaning the market wasn’t able to push significantly below the 1893 support, the June low. Therefore, the market has in fact created a weekly double bottom, which signals that the bears might not be in charge anymore. This gives us a bullish scenario.

Let’s consider the technical factors supporting the bullish case. Apart, from the double bottom (a major bullish factor) we have the Stochastics Oscillator giving a buy signal in the weekly chart. If the bulls have what it takes to push the market through the technical confluence zone (1945.74 – 1951.60) we could see the market trading to a July high at 1987.43. This level is the neckline of a potential W-formation the market could be currently forming. We will update you on this in the future gold technical analysis reports.

The bearish scenario for gold would be supported by the fact that the market is still trading below the latest weekly swing high. Therefore, the latest rally could still fail and if the market created a lower swing high below the 1987 swing high a retest of 1893 would not be a surprise. The third option is that gold will trade sideways in the range it effectively is in (1893 – 1987) before it can find direction.

Gold technical analysis daily chart

Gold technical analysis daily

The daily chart shows gold rallying over 30 dollars in just a few days. This move was propelled by rallying the T-Bond market and lower yields which in turn pushed the dollar lower.

Gold is trying to break out of the bearish trend channel but at the time of writing this, there have been no decisive moves yet. A healthy rally above the channel high could open the way to 1970 or so while a failure to maintain the momentum might push the market back down, perhaps to 1930.

The Stochastics Oscillator is currently above the 80-point overbought threshold level. If there’s weakness in gold and the indicator drops below 80, this is considered a sell signal in this context. However, always prioritise price action analysis as indicators follow the price.

Yesterday’s daily candle has a long wick suggesting potential weakness in gold at this level. However, the fact that the market rejected the move below the 1893 low suggests there could be further strength in this market and the potential dips could therefore be shallow.

If this is the case, then the big money traders might be less willing to take big bets to the downside. All this is speculation of course, but it’s part of the tactical thinking process that should be integrated into creating and considering different scenarios for the future price action in gold.

The proof is in the pudding as they say. In trading terms, this means we need to follow the price action day by day and hour by hour to see what scenario is more likely to play out and then make our trading decisions based on our observations rather than hard and fastened beliefs.

Those beliefs have in history, cost extraordinary amounts of money to traders. Therefore, trade what you see, not what you expect to see!

Gold technical analysis 4h chart

Gold technical analysis 4h

Gold technical analysis in a four-hour timeframe gives us a more granular picture of the recent rally. It shows the key support levels in 1926, 1935 and 1942.15. It also reveals a couple of bearish shooting star candles. These are minor signs of weakness but they could lead to the market testing the nearest support level (1942.15).

If the level does not hold the 1935 level could be tested. Stochastics oscillator is already trading below the 80 level after hitting 94.65 earlier when the price of gold was lower. This divergence signals the same momentum slowdown we can see in the last four to five candles.

In this timeframe gold trades in a bullish trend channel. The current low of the channel coincides with the 1926 support level while the SMA (20) is currently at 1931.31.

Therefore, it looks possible that should there be a correction lower from the current price levels, the 1930 area (roughly) could be where the market could move on the downside. For the upside potential see the higher timeframe analysis in this gold technical analysis report.

Do you want to learn more about trading the gold market? Follow these links to watch our popular videos on What is the best time to trade XAUUSD part 1 and part 2. Don't miss out of this vital information!

Client sentiment graph

Client sentiment analysis

Most of the TIOmarkets clients (82%) are short gold at the time of writing this. It’s good to remember that the retail trader client sentiment is a contrarian indicator as most of the retail traders are on average betting against the market trends. This is why, experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.

Gold fundamental analysis

The USD softened in response to the recent lacklustre GDP report, which registered a growth of 2.1% q/q, falling short of the anticipated 2.4% and matching the prior quarter's numbers.

The Fed Policy Outlook

This underwhelming performance bolsters the prevailing sentiment that the Federal Reserve is approaching the culmination of its rate-hiking trajectory. Echoing this sentiment, Fed Fund Futures traders have adjusted their positioning, now projecting a potential rate reduction by May 2024.

Consumer Spending and business investment

Consumer spending has decelerated to a tepid 1.7% from a more robust 4.2% in Q1, signalling a possible erosion of consumer confidence or purchasing power. On the brighter side, non-residential fixed investment surged to an impressive 6.1%, underscoring heightened business confidence in long-term projects. This could serve as a counterbalance, making the Fed less inclined to adopt an overly dovish stance.

Exports decline

However, the sharp 10.6% decline in exports, possibly attributed to deteriorating global economic conditions and trade barriers, adds an element of caution. Similarly, the negative contribution of private inventory investment to GDP suggests a general business reticence to stock up for future demand, most likely stemming from economic uncertainties.

Conclusion

Given these mixed signals, the Federal Reserve faces a delicate balancing act. The confluence of slowing consumer and government spending, coupled with declines in exports and private inventory investment, leans the scales towards a dovish policy orientation.

For more analysis on the US economy, visit our recent reports on EURUSD and S&P 500.

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The next main risk events

  • EUR - Core CPI Flash Estimate
  • EUR - CPI Flash Estimate
  • USD - Core PCE Price Index
  • USD - Unemployment Claims
  • CNY - Caixin Manufacturing PMI
  • CHF - CPI
  • CAD - GDP
  • USD - Average Hourly Earnings
  • USD - Non-Farm Employment Change
  • USD - Unemployment Rate
  • USD - ISM Manufacturing PMI
  • USD - ISM Manufacturing Prices

For more information and details see the TIOmarkets economic calendar.


While research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

DISCLAIMER: Tio Markets offers an exclusively execution-only service. The views expressed are for information purposes only. None of the content provided constitutes any form of investment advice. The comments are made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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