Gold is Back to $4k but is it There to Stay?

USD strength showed around the FOMC meeting yesterday as Powell didn’t sound as dovish as markets were expecting or hoping for. He wasn’t exactly hawkish but he said that a December rate cut wasn’t a foregone conclusion, and the lack of data from the ongoing government shutdown wasn’t necessarily being construed as an item denoting greater labor market weakness. Gold initially sold off on the back of the FOMC meeting but so far, it’s held a higher-low and is vying for a breakout to get back above the $4k handle.

The gold sell-off all started from a double top formation that broke down last week. Initially, there was clean defense of the $4k psychological level on that pullback, but the bounce simply brought more selling and gold finally pushed below the big figure on Monday of this week. The slide continued through Tuesday night, with a prior point of resistance at $3895 coming in to hold the lows. And while that bounce was also faded, with another push of weakness around the FOMC rate decision yesterday, bulls have been making their way back in, with a higher-low overnight and as of this writing, another push back above the psychologically important $4k level.

Gold Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Daily

The daily chart of gold can be seen as an early sign of encouragement. While the break and follow-through from the double top formation was quick and aggressive, the elongated wick from Tuesday has so far been followed by a higher-low yesterday and another so far today; and this has to be considered with the fact that the Fed wasn’t overtly dovish at yesterday’s rate decision. The strength shown so far today is a bright spot for bulls, showing that there’s been some value discovery from the 3915 level that’s been tested as the low for the past two days.

The formation over the past three days isn’t quite a morning star formation but it does have a similar three bar sequence highlighting turn potential, where bar one shows an aggressive push of continuation, followed by a degree of indecision on bar two, although this takes on more of a spinning top tone than a doji. And so far bar three is a clear reversal of bar one’s weakness, highlighting that pivot potential.

But, of course, the big question here is whether the $4k level can remain defended and whether buyers are willing to take on exposure above the big figure, which ultimately is what remains as the key test ahead.

Gold Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Shorter-Term

Given the current resistance test, I thought it’d be appropriate to look at the shorter-term dynamics in gold, but this must be qualified by the fact that shorter-terms can often be noisier simply from a smaller sample sizing effect.

Adding a Fibonacci retracement to the recent sell-off can also provide some additional perspective, and it’s the 23.6% retracement that’s currently being tested, also around that $4k level. This becomes a big spot of support potential in breakout scenarios with the next spot of resistance overhead a the $4075 level, and the 50% mark of the recent sell-off is confluent with the 23.6% retracement of the move that started from Jerome Powell’s speech at Jackson Hole. That’s also the site of the lower-high before the $4k break, so this similarly shows as a big spot of resistance potential in bullish scenarios on gold, after which 4075 would be considered as a spot for higher-low support.

Above that, the 4186-4192 area is both a significant swing low, the site of the prior neckline from the double top formation, and also confluent with the 61.8% retracement of the sell-off. That sets up as an ‘r3’ area of resistance for bullish continuation setups.

Gold Hourly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist