Gold: Is the Uptrend Ready to Resume After a Healthy Correction?
September 24, 2019 11:48 AM
Does the recent pullback mark the end of the rally or a healthy correction in the uptrend?
As the third quarter winds to a close, everyone’s favorite yellow metal has been a standout performer.
After a stellar 7% rally in June, gold has tacked on another 9% so far this quarter with prices peaking at a 6.5-year high above $1550 at the start of this month. With prices pulling back from the recent highs, the biggest question for gold traders is whether this marks the end of the summer’s explosive rally or merely a healthy correction in the context of the longer-term uptrend.
From a fundamental perspective, the factors driving this summer’s big rally remain intact: global geopolitical tensions (US-China, Iran, Venezuela, North Korea, etc) remain elevated, and interest rates remain at record lows across the developed world. Subdued interest rates decrease the opportunity cost of holding gold and have historically been associated with higher prices. Looking at sentiment and positioning, futures traders remain heavily long the yellow metal, but bulls have pared back their bets in recent weeks, potentially clearing the way for another leg higher in the short term.
Technically speaking, gold has not yet set a meaningful “lower low,” keeping the recent uptrend intact. Instead, prices have spent the last six weeks consolidating between support at $1485 and resistance at $1555. This sideways price action, coming after a strong bullish rally, creates a “high base” formation which shows that the bullish euphoria is correcting through time rather than through price. Generally, these types of patterns result in a topside breakout and a continuation of the established uptrend.
Source: TradingView, FOREX.com
With the RSI indicator pulling back from overbought territory and the MACD turning higher to cross above both its signal line and the “0” level, the stage is set for gold to take another leg higher. Traders should watch for a confirmed breakout in price above $1555, as well as the RSI indicator breaking out of its near-term bearish channel, to signal a potential continuation toward $1600 or higher heading into Q4. That said, a bearish breakdown through near-term support at $1485 would suggest that a deeper retracement is in the cards, with bears looking to target previous-resistance-turned-support in the $1440 area.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.