Gold
Gold strength has remained into 2026 trade and the metal is already vying for a break of a significant level at the $4500 handle. While bulls were able to prod a quick test above in December, they weren’t able to hold prices above that price, and a strong pullback developed ahead of the end of the year with prices dipping down for a test below $4280. That was short-lived, however, and now at this stage seems to have been some EOY profit taking as buyers have simply taken back over again.
In early trade this week, gold re-tested $4500, but notably, the reaction to that and the dip that followed was rather mild, and price took on the form of a falling wedge formation, which is often approached with aim of bullish breakout. Bulls wouldn’t even allow for a re-test of the $4400 level and have since come back with aggression to drive prices right into a fresh higher-high and a test above that same $4500 line-in-the-sand.
Gold Four-Hour Price Chart
Chart prepared by James Stanley; data derived from Tradingview
Gold: Chase or Wait?
A backdrop such as we have in gold, while seemingly simple, can be complex from a strategy perspective. The positive is that the trend has been clear, and that’s an observable bias that could possibly continue. The challenge is the fact that price is so far away from any nearby swing-lows that managing risk on such a setup can be problematic, and with the prior high of $4550 somewhat near at this point, the perceived risk-reward generated from prior structure leaves something to be desired.
So, at that point, traders have a choice to make and like most other choices in life, there’s both pros and cons. One approach is to chase the move, and this will often be driven by the fear of missing out. The upside of such a scenario is it allows to get on that trend-side move and if we do see the breakout and re-test of $4550, then matters can seem simple. The downside, however, is that if we do pullback and even if a higher-low does hold, the adverse excursion could be large and outsized. And then, of course, there’s the risk that the higher-low doesn’t hold, and the trader eats a large stop as gold prices go into a deeper pullback type of scenario. Just one look at the pullback from two weeks prior shows how quickly such matters can develop, particularly if there’s motive such as what can be produced by next week’s CPI report.
On the waiting side, again, there’s both pros and cons. The pro to such an approach is that it allows the trader to take a more risk-defined approach towards the trend, with a tighter potential stop relative to the reward outlay. The con, of course, is that the pullback never happens. And there’s also the possibility of failure as that, too, doesn’t necessarily mean that the trend must continue.
In my opinion, the reason the second approach may bring additional value goes right back to the element of psychology. In the first approach, if chasing the move higher, driven by the excitement of what the trend has so far produced, failure is also coupled with blame, and this is the blame for lacking discipline; for an inability to control one’s own emotions. The downside of that first approach can be heavy, and it can carry with it psychological consequence that, frankly, the trader should bear. The second approach, on the other hand, is something that one can be prouder of in adverse scenarios. If the pullback doesn’t happen and the market screams higher with the trader still waiting to open a position, well, that’s just missed opportunity cost. Or, in fa failure scenario, where the trader gets the pullback, places the entry, sets the stop, and then the market continues pulling back, well the loss has been somewhat contained and the trader can at least move forward with the confidence that they took a patient, professional approach towards trend continuation, while not allowing their emotions and excitement to get the best of them.
For that approach, there’s now three levels of possible support that can remain a viable way forward, with 4480 somewhat nearby already, followed by 4442 and then the 4402 level of prior resistance that held a pullback as support on Monday.
Gold Two-Hour Chart
Chart prepared by James Stanley; data derived from Tradingview
Gold Big Picture
While the future is always to remain uncertain, one of the more beneficial aspects of charting and technical analysis is the observation of what matters at any given point in time. In gold, that’s been a bullish rally that’s going on two years now and the long bias in the market has remained through a variety of macroeconomic backdrops and drives.
The challenge point then becomes how to take part in that trend in a risk-efficient manner, and interestingly, its when the trend seems its least attractive to many market participants that opportunity is at its highest. This is like we saw with the build of bull pennants in the final two months of 2024, or over two separate occasions last year.
Chasing, and allowing excitement to drive decision-making, can be a difficult way of going about matters even in a strong trending backdrop where the wind is seemingly behind your sails.
For next week, where the opportunity lies is the fact that the US Dollar is threatening a breakout and if we do see a strong CPI print on Tuesday, there could be reason for Gold bulls to take profit. This can then bring on a pullback and a support test and it’s the evaluation of that support that can re-open the door for big picture bullish continuation. The three aforementioned levels certainly apply, but from a longer-term perspective, there’s also $4380, $4350 and then a major zone around the $4250 handle, which has been tested as resistance multiple times but still hasn’t shown as support since the December breakout and rally up to fresh ATHs at $4550.
Gold Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
