Gold Short-term Outlook: XAU/USD Crash Faces First Test of Support

Gold Technical Outlook: XAU/USD Short-term Trade Levels

• Gold reverses sharply off multi-month uptrend resistance- pullback now testing initial support
•  XAU/USD focus is on a potential reaction off this slope for guidance- near-term risk weighted lower while below the weekly open
• Traders eye key U.S. inflation data on Friday, FOMC rate decision next week as headline risk intensifies
• Resistance 4113/25, 4193, 4238/52 (key)- Support 3973-4000 (key), 3847/59, 3700/20

Gold prices pulled back sharply after reversing off multi-month uptrend resistance, with XAU/USD down nearly 9% from the record high. The decline is now testing the first major support zone at the median-line, and the focus is on a potential inflection off this slope. Traders are watching closely as key U.S. inflation data is released Friday, followed by next week’s FOMC rate decision — two events likely to drive volatility and define near-term direction. Battle lines drawn on the XAU/USD short-term technical charts.

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Gold Price Chart – XAU/USD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; XAU/USD on TradingView

Technical Outlook: In my last Gold Short-term Outlook we noted that the XAU/USD was trading just below near-term resistance and that, “from a trading standpoint, losses would need to be limited to 3760 IF price is heading for a breakout on this stretch with a close above 3908 needed to fuel the next major leg of the advance.” Gold broke higher the following day with XAU/USD surging more than 13.7% from the October open. The rally exhausted on Monday at the upper parallel of an ascending pitchfork extending off the January low with a sharp sell-off plunging more than 8.6% off the record high.

Yesterday’s sell-off represents the largest single-day range on record and the largest single-day loss in gold since August 2020, just days after the yearly high was registered. The threat remains for a deeper correction within the broader uptrend, and the immediate focus is on this pullback with the decline now approaching confluent support at the median-line. This is the first level of defense for the uptrend and a reaction off this mark will likely dictate the near-term outlook.

Gold Price Chart – XAU/USD 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; XAU/USD on TradingView

Notes: A closer look at gold price action shows the magnitude of the XAU/USD reversal after failing at the upper parallel early in the week. The sell-off is trading within a short-term channel off the high with decline now approaching the first major support hurdle around the 38.2% retracement of the August advance at 3973-4000- note that the August trendline and the median-line both converge on this threshold and a break / close below would be needed to suggest a more significant correction is underway here. Subsequent support objectives rest at the 50% retracement / October open at 3847/59 with broader bullish invalidation now raised to the 61.8% retracement at 3700/20.

Initial resistance is now eyed at the 2.618% extension of the April decline / yesterday’s reversal close at 4113/25 and is backed by the 50% retracement of the most decline at 4193. Near-term bearish invalidation stands with the 61.8% retracement / weekly open at 4238/52 and a breach / close above this threshold would be needed to suggest a more significant low is in place / resumption of the uptrend. The record high / high-day close is eyed at 4356/81 with a close above the upper parallel needed to fuel the next major leg of the advance towards the 1.618% extension of the yearly advance at 4553.

Bottom line: Gold has reversed off multi-month uptrend resistance with the pullback now testing initial uptrend support at the median-line- looking for a reaction off this mark for guidance with the near-term risk weighted to the downside while below the weekly open.  From a trading standpoint, rallies would need to be limited to 4193 IF price is heading lower on this stretch with a close below 3973 needed to fuel the next leg lower. Ultimately a larger setback here may offer more favorable opportunities closer to uptrend support.

Keep in mind we get the release of key U.S. inflation data this week with the September Consumer Price Index (CPI) on tap Friday ahead of next week’s highly anticipated Fed interest rate decision. Stay nimble into the release and watch the weekly closes here for guidance. Review my latest Gold Weekly Technical Forecast for a closer look at the longer-term XAU/USD trade levels.

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--- Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex