Gold Price Forecast: Gold Continues Support Bounce, Builds Rising Wedge

Published date: .

Gold Talking Points:

  • It’s been quite the change in Gold over the past few weeks after a major zone of support came into play around two-year-lows.
  • Gold prices have gained for three consecutive weeks and are currently working on a fourth. There’s a big zone of resistance overhead from around 1832-1842, and that would be a key spot on the chart to look for how bears respond and whether bulls can retain control.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

There’s been a big change in macro sentiment of late, brought upon by the hope that the Fed may be nearing some sort of pivot in their rate hike plans. And this theme can be seen across a number of global markets at the moment, particularly in stocks which went from famine in June to feasting in July and so far through August.

Gold prices also reflect this fairly well and the fundamental argument is perhaps even more-clearly on display here. When inflation is running high and rates are held flat, this could be beneficial for Gold as we’re seeing purchasing power in the currency eroding. But, when interest rates begin to rise in effort of tempering that inflation, that can quickly become a negative for Gold as there’s now a greater opportunity cost of keeping cash in a commodity versus an interest-bearing vehicle. And as rates go higher and higher, that opportunity cost increases, and that can lead to bearish behavior in Gold.

Case in point, it’s been a painful five months for Gold after it topped-out above the 2k level in early-March. Gold prices fell by almost 20% over this period – until running into a major spot of support at the two-year-lows which has provoked a sizable bounce over the past month.

Gold Weekly Price Chart

gold weekly chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Shorter-Term

On a shorter-term basis momentum remains bullish. There was a sizable gap through a big area of resistance ahead of the August open, and that run has continued. There was a zone of resistance-turned-support at 1763-1771 which came into play last Wednesday. Buyers have pushed higher since and the next zone of resistance is fast approaching, which spans between Fibonacci levels at 1832 and 1842. This area was last in-play as resistance in late-June.

Over the past week, there’s been an uneven nature to the rally with bulls showing more aggression at lows or tests of support than what’s shown near highs or at resistance. This has led to the build of a rising wedge pattern.

Gold Four-Hour Chart

gold four hour chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Near-Term Strategy

While momentum is strong, it’s starting to show possible signs of slowing or perhaps even reversing, as evidenced by the rising wedge above. But – as we’ve seen in a number of markets lately, the pull from this macro drive of hope that the Fed may be nearing a pivot can remain as a very powerful variable.

From the daily chart below we can pull a number of pertinent support and resistance levels via price action that can help with near-term strategy. A breach of the wedge opens the door for a support test in the 1763-1771 zone. There was a doji that printed right off of the top of that zone last week, so if bears can penetrate, then we’d be looking at some fresh near-term lows, after which the gap from the week before comes into view as a spot of vulnerability.

On the upside, that resistance zone from 1832-1842 looms large, and there’s another above that that caught the June highs and that runs from 1878 up to 1881. And if that’s broken, we’re likely seeing some considerable change in the macro backdrop and the next zone of interest would be all the way up around the 1925-1938 zone.

Gold Daily Price Chart

gold daily 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