Gold Summary:
The double top formation from two weeks ago continued to fill-in through last week’s open, finally finding a bounce at a prior resistance level of 3895. And a higher-low showed on Friday with a hold of 3975, which is the 38.2% retracement of the rally that sparked from Jerome Powell’s speech at Jackson Hole, and that helps to put into scope just intense that parabolic move had become. The big question now is whether buyers can defend the 4k level and push back up towards fresh highs, or whether we’re looking at a repeat scenario like in April when gold found resistance at $3500, and spent the next four months consolidating into a symmetrical triangle (which was a bull pennant that ultimately broke out on that speech from Powell at Jackson Hole).
They say that death and taxes are the only two certainties of life, but perhaps that should be changed to also include a government’s willingness to spend more money, even if they haven’t raised it from taxes. While balanced budgets were a governmental priority in decades past, since the Financial Collapse in 2008 there hasn’t seemed to be much tolerance for austerity. And that premise has only continued to grow and it seems the one matter that either side of the aisle can agree on in US politics is the need to spend, even if they do differ on the ‘what.’
This has been largely beneficial for gold, and even with Powell sounding a bit less dovish than what markets were looking for at this week’s rate cut, that doesn’t seem set for change anytime soon. It was earlier in October when President Trump said directly that “with the kind of growth we have now, the debt is very low, relatively speaking. You grow yourself out of that debt.”
On a more concrete platform, it was Austan Goolsbee’s ‘let’s not get flipped out’ comment regarding above-target inflation last February that initially catapulted gold above the $2k level, after which it never looked back. And then it was Jerome Powell’s speech at Jackson Hole, finally opening the door for rate cuts, even if inflation was well above their own 2% target, when gold broke out of a bull pennant and ran in a parabolic manner for the next two months.
It's only finally started to settle from that, and it still seems far too early to say that it’s over.
But, with that said, there’s been two prior periods of consolidation in this move in the final two months of last year and then for four months this year, and we could be on the cusp of one of those episodes after a historical bullish rally in the metal.
Gold Monthly Chart
Chart prepared by James Stanley; data derived from Tradingview
Gold Daily
It was the 4380 level when matters began to shift. That set up a double top formation and those are often approached with aim of a bearish break, which took place last week.
Initially, buyers showed just above the $4k level and defended the pullback, but that bounce was short-lived and sellers went for another push this week.
Given how strong the trend had run, and for how long, there was likely a considerable amount of profit taking that took place, but from the daily chart below it’s still too early to say that it’s completed yet as we have a continued series of lower-lows and lower-highs.
The fact that buyers were able to push price back above the $4k level by the weekly close in spot gold is a bullish factor, to be sure, and this keeps the door open for a test of resistance at prior support, running from 4059-4080. The 38.2% retracement of the pullback is just inside of 4075 so that sets a major zone and if buyers can push through, that’ll give greater confidence that a near-term low is in-place, which would then open the door for a push up to 4133 and then 4198.
Gold Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
