justatrader

Gold (XAUUSD) sits at an interesting juncture

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OANDA:XAUUSD   Gold Spot / U.S. Dollar
The interesting thing about the markets is that investors tend to shoot first and ask questions later. With Gold , it tends to lead this very basis. If you look at Gold and the S&P500 chart, you can see that equities reacted a bit later than gold . I think since late December, the markets were "expecting" something bad to happen. First it was the inverted yield curve, then the peak of china trade war and finally, the virus outbreak gave investors a reason to sell.

Gold is at an interesting juncture at this point in time. Here’s the context.

Let’s start with the monthly chart and work on the assumption that gold is in a very long term uptrend. The rally from 2006 March lows of 544 to September 11 highs of 1921 saw a gradual descent. With the Fibs, it is interesting to see how gold reversed bang near the 61.8% retracement level. There was a bit of resistance at the 38.2% Fib level. After struggling to break this since 2014, it finally happened in June 2019. The result was a powerful move to where prices are today.

The level of 1680 is marked in green because it is the measured move off the ascending triangle that formed at the resistance level of 1360.
A quick look at the Stochastics and you can see the very long term hidden bearish divergence. Now divergences are tricky, at best one can see price behaviour to the divergence only in hindsight.

So what is the monthly chart telling us? That perhaps the rally is overdone.

I’ve also plotted some median lines along the way. Watch how price reacted when it failed to reach the median or one of the outer channel lines. For the moment, the best bet is for price to continue to break above 1680 and rally towards 1800. But notice that no proper floor has formed between 1360 and the current price. Could we expect a price failure at the current median line?

Switching to the daily chart , the ascending wedge is in play. The thick lines of 1550 and 1450 (rounded) are the key support levels (which should be of interest)
The fib levels on the daily chart is the minimum measured move following the bullish flag formation (in blue).


So there is scope for gold to break past 1680 and maybe hit 1720. Divergences are also showing up strongly and multiple times here.
As such, the 1720 - 1700 level will be interesting to watch. I won’t advise what one should do here. But it looks like we are nearing the end of this prolonged rally since August 2018.

Lastly, seasonality also adds to the downside bias.

Safe havens like JPY and gold tend to rise into the Feb/March months before gradually descending lower.
Finally, it would be an additional validation if the “sell area” between 1720 - 1700 coincides with some fundamental news. The next two weeks should be interesting as far as gold is concerned, within the larger context.

So in conclusion, 1680 - 1720 is a level worth keeping an eye on for 1550 - 1450 region.

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