Gold Sell-Off Stalls but Can Bulls Force a Turn?

Gold Talking Points:

• Gold has taken some hits as the August breakout went into reversal.
• But like we saw in June and July, big support showed at a major psychological level with $4100 coming into play over the past couple weeks after $4k helped to set the floor this summer.

There can be large differences between short and long-terms, and that dichotomy has been clear so far this year in Gold. After coming into the year riding a massive wave of strength and overbought conditions, a sizable reversal in January led to a bounce that ran into March. But, that’s when the Iran scenario started to take over headlines and as fears of inflation entered the equation, Gold sellers took over.

In June, at the FOMC rate decision, a hawkish Fed gave investors even less reason to be excited about the long side of Gold. A more hawkish Fed combined with that jump in inflation made it seem as though holding a non-yielding asset like Gold or Bitcoin could be a sub-optimal route. And, accordingly, after Kevin Warsh’s first meeting atop the Fed, Gold finally broke down to re-test the $4k level.

But it’s what happened then that is of interest, as repeated attempts from sellers to push a breakdown failed, and from the weekly chart, you can see that there wasn’t a single week where spot Gold closed below the big figure, hinting that some market players were using this bearish short-term backdrop as opportunity to accumulate.

Gold Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Daily

The above chart has the appearance of smoothness, given the build of support at $4k and the rally that followed, and then, more recently, the support at $4100. The daily chart is more chaotic, however, and there’s even a degree of resemblance between that June/July period and what’s taken place more recently.

This is, in essence, a range, although there’s not as much consistency as one might want when trading a range. There have been multiple resistance hits at $4200 and the upper wicks on those candles show short-term bears using rallies to pare positions. But, like we saw back in June and July, there’s also underside wicks after tests of lows, similar to what showed up last week and in that instance, we saw a higher-low print as bears were unable to take out the prior week low.

Gold Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold: Threading the Needle

At this point traders would probably want to have a defined approach before looking to make a directional push on Gold, in either direction. For longer-term approaches, the prospect of a hold at short-term range support in the direction of the longer-term trend remains attractive. But, for those with more short-term vantage points, there might be an open door to work with the short-side within that range; and perhaps even a breach of support to allow for another $4k re-test.

On the below four-hour chart, I’ve allocated the range as it’s played out over the past few weeks, and shows of support above $4074 are of particular interest, with $4109-$4120 also presenting some attraction.

For resistance, the $4200 level has been trafficked so heavily that we’ve even seen some resistance build below that, around $4190, and that helps to demarcate resistance.

Gold Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro