Gold Snaps Back – Has XAU/USD Topped?

It was a massive rally from the bull pennant breakout after Jerome Powell’s speech at Jackson Hole, and last week was the first red weekly outing in spot gold since then. The question now is whether the pullback can continue as profit taking continues.

It’s too early to say that gold has topped but the look of the current weekly bar suggests we may be at the forefront of a consolidation backdrop, similar to the bull pennants that developed last year and then from April-August of this year.

It was the 4380 level that finally stalled the rally in gold, and that level traded twice on Thursday of the prior week and then again on Monday of this week. That resistance was a clean hold and that set up a double top formation, which began to fill in on Tuesday morning with a strong sell-off in gold that eventually saw a pivot just above the $4k psychological level.

It was a contentious test down there as buyers showed up to defend that price late on Tuesday and then twice on Wednesday morning, with bullish momentum showing back up on Thursday.

It’s still too early to call game over for bulls, however, as sellers took another shot later in the week until the 4050 support zone showed up, leading to a bounce on Friday morning after the CPI release.

Gold Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold’s Big Picture

The current rally in gold sparked in February of last year following a comment from Austan Goolsbee of the Chicago Fed, and that rally has extended beyond 100% at this point as it was the $2k level that was prior resistance, showing up for support just ahead of the initial sparks of the rally.

Along the way there have been two pauses, both of which built bull pennant formations:  The final two months of last year and then again for four months of this year. These illustrate healthy bullish construction of a continued topside trend as those periods represented opportunities for bulls to take profit with fresh buyers showing up to support higher-lows.

It's still too early to say that’s what we have here, however, but the first red candle since the August breakout is notable as the current rally extended for nine consecutive green weeks until finally finding some element of resistance.

Gold Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Near-Term Strategy

With the defense of $4k so far there’s still an open door for continuation, but as looked at in the first chart, the challenge now is trying to avoid chasing short-term bullish trends that may face resistance at lower-highs. There’s a few spots of reference as taken from prior supports, but perhaps more attractively, pullbacks to support could at the least offer a mechanism for concentrating risk outlay for topside continuation setups.

From the daily chart, it’s the zone from 4060-4080 that’s stood out over the past four days as support. Notably this morning drew a lower-low into the picture so ideally, corresponding pullbacks would retain a higher-low above that swing, and even better would be a hold right around the top of the zone at 4080.

For resistance, it was a spot of resistance turned support around 4218 that looms large overhead. If bulls can take that out, it’ll look as though they’ve regained control following the dip and defense of the 4k level. But, if we do see some element of selling on a recurrent test of that price, we’ll be looking at the prospect of a lower-high and that’s something that tilts odds towards a deeper retracement, or at the least, a pullback with another re-test of that 4k zone that could lead to something along those lines.

Gold Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist