US MARKET

Gold shrinks to new four-month lows


Gold Price Forecast Talking Points:

  • Gold price broke down this morning on the back of USD-the force drawn from the American PMI report.
  • Gold prices have set new four-month lows, removing a large area of ​​support along the way.
  • The longer term outlook for gold remains bullish as gold price action continues to trade within the limits of a falling wedge formation.
  • The analysis contained in item based on Price action and graphic training. To learn more about price action or chart patterns, check out our DailyFX Education section.

The outbreak gold bullish trend from this summer now feels a little further away …

Gold prices collapsed this morning on the back of a very strong PMI impression in the United States. This PMI print pushed the US dollar higher and gold, accompanying the ride, fell to new lows for four months.

Perhaps the part of this that is more interesting than the size of the movement itself is where it happened; Gold prices had been tested the same support zone since early August. This zone between 1859 and 1871 included several Fibonacci levels from different studies, and it has retained many inflections over the past few months until buyers finally folded back to supply this morning, allowing prices to l ‘gold to slide to this new low.

It may seem very simple to turn bearish on a move of this nature: but gold bears need to be very careful here given the longer term context, which we’ll look at below.

Daily Gold Price Chart: New Four-Month Lows As Big Support Trade

Daily Gold Price Table

Graphic prepared by James stanley; Gold on Tradingview

Gold Price – Overview

Take a step back to look at the bigger picture on gold – and the long term bull cycle remains. Today’s sell has entered the 38.2% retracement of the major 2020 move from March low to August high.

This August summit came into play on August 7e, to hit a new record high of $ 2,075. But – that day’s price action ended with a bearish engulfing candlestick; and as stated in the technical forecast for this week, that opened the door for a counter-current movement in the middle of that earlier force streak. It didn’t take long for the pullback to develop, as gold prices returned over $ 200 in the early days of next week. But, that’s when the 1859-1871 support zone kicked in and stayed in play for much of the next four months until the sellers could finally take a break to start this week.

To learn more about bearish engulfing patterns, check-out DailyFX Education

But the formation of long-term descending wedges remains and the bigger picture may retain a bullish quality. But given that gold prices have just pushed to a new low, this longer-term bullish theme may have to stay on hold, at least for now.

Weekly Gold Price Chart: Falling Coin Formation Remains

Weekly Gold Price Table

Graphic prepared by James stanley; Gold on Tradingview

Short-term gold price strategy

With gold rebounding slightly from these new four month highs, there may be room for the bulls and bears here to implement some form of strategy.

On the bearish side, for those considering a continued sell-off in gold prices, this area of ​​earlier support could become potential resistance. This area runs from 1859 to 1871 and has seen a number of recent support tests.

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Four hour gold price chart

Four hour gold price chart

Graphic prepared by James stanley; Gold on Tradingview

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For gold bulls, this downward break may actually be welcome …

As we have seen over the past couple of months, this digestion has remained in place with a few different seizures and starts. There have been a number of false outbreaks and whenever gold hit a new high, the buying pressure stalled and sellers kicked in. This could be emblematic of an overbought backdrop in this summer bull run, so that buyers were holding positions in anticipation of a further upside.

Of course, with today’s push to new four-month lows, there have likely been a number of stops by these traders which initially exacerbated the sell with the release. of this offer. But – it also means that there may now be more money on the sidelines which could help in a bullish pursuit scenario if / when buyers are able to justify their support.

For that longer term look for gold bulls, re-claiming the 1859 level is a good first step; and an element of follow-up support around that level could make the bulls appear to be getting back into order.

To learn more about falling corner patterns, check-out DailyFX Education

Daily Gold Price Table

Daily Gold Price Table

Graphic prepared by James stanley; Gold on Tradingview

— Written by James stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX



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