Gold Price Action Setup: Deciphering the Trend

This is a follow-up to the previous update “Gold and Silver Technical Outlook: Have Precious Metals Turned Bearish?”, published Feb.13. This piece attempts to address the question by looking at less-subjective ways to identify the trend on the daily charts.

On the daily charts, the color-coded charts based on trending/momentum indicators suggest that XAU/USD is currently in a consolidation phase (not yet bearish) within a bullish phase. To some extent, this is evident from price action as well.

XAU/USD Daily Chart


The retracement so far this month is 38.2% of the rise from November – retracements of 38.2%-50% are considered to be reasonable, and not necessarily the end of the prevailing trend. Secondly, gold remains above the lower edge of the Ichimoku cloud support, the 200-day moving average, and the resistance-turned-support on the 89-day moving average. Moreover, XAU/USD hasn’t broken below any noticeable price pivot.

XAU/USD 240-minute Chart


The tricky bit here is that there is no significant price pivot on the daily charts above the August high of 1808 due to the sharp/unidirectional rise in January. The absence of a price pivot makes it tricky to decipher a change in trend, especially in the case of ‘inverted-V’ or ‘A’-shaped declines. That is, the confirmation of a change in trend can come later than instances where there is a price pivot closer to the peak.

XAU/USD Daily Chart


In this regard, bears would argue that gold has turned bearish in the short term based on an Average True Range-based trending indicator (see chart), which the color-coded intraday charts confirm. On the 240-minute charts, the trend is bearish.

XAU/USD Daily Chart


Depending on the timeframe of reference, the assessment differs. XAU/USD is now approaching a strong support area of 1775-1810. A positive Stochastics divergence on the daily charts suggests the slide is losing steam and the yellow metal could be due for a rebound (see daily chart). However, gold would need to break above the immediate ceiling at 1890-1900 for the immediate downward risks to ease.


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