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Gold continues to bounce off support, building a rising wedge

Gold Talking Points:

  • A lot has changed in gold over the past few weeks A major circle of support materialized in less than two years.
  • Gold prices have risen for three consecutive weeks and are currently at the fourth position. There is a big zone of resistance around 1832-1842, and this is an important place on the chart to see how the bears react and if the bulls can maintain control.
  • The analysis contained in the article relies on Price action And Chart structures. To learn more about price action or chart patterns, check out our DailyFX Education Division.

There was Big change in macro sentiment of late, brought about by the hope that the Fed could be approaching some sort of pivot in their rate hike plans. And this theme can be found in several global markets at this time, Especially in stocks that went from famine in June to feast in July And so far until August.

Gold prices reflect this fairly well and the basic argument is probably on display here. When inflation is running high and rates are flat, this benefits gold as we see purchasing power erode in the currency. But, when interest rates begin to rise in an effort to moderate that inflation, it can quickly turn negative for gold, as the opportunity cost of keeping money in a commodity is now an interest-bearing vehicle. And as rates go higher and higher, that opportunity cost increases and that can lead to reckless behavior in gold.

Case in point, it’s been a painful five months for gold since it topped the 2k level in early March. The price of gold has fallen by around 20% during this period – Until the run to a key position of two-year-minimum support that triggered a substantial bounce from last month.

Gold weekly price chart

Gold weekly chart

A chart is prepared James Stanley; Gold in Trading View

Gold is short term

Momentum remains bullish on a short-term basis. There was a lot of gap through a large area of ​​resistance before the August Open, and that run has continued. There was a zone of Resistance turned support In 1763-1771 it came into effect on the last Wednesday. Buyers have since pushed higher and the next zone of resistance is fast approaching, which spans between Fibonacci levels In 1832 and 1842. The area was last played as resistance in late June.

Over the past week, the rally has had an uneven nature, with bulls showing more aggression in tests of support or resistance than they did in resistance. This is due to construction Rising wedge pattern.

Gold four hour chart

Gold four hour chart

A chart is prepared James Stanley; Gold in Trading View

Gold Near-Term Strategy

Although the momentum is strong, it is starting to show signs of slowing or possibly reversing as evidenced by the rising wedge above. But – as we’ve seen in several markets recently, the pull from this macro drive of hope that the Fed may be approaching a pivot may remain the most powerful variable.

We can draw several relevant points from the daily chart below Support and resistance levels through price action This can help with near-term strategy. A breach of the wedge opens the door to a test of support in the 1763-1771 zone. There was a Doji It was printed off the top of that zone last week, so if the bears can break through, we’re looking at some fresh near-term lows, after which the gap from the week before will appear as a spot of weakness.

On the upside, that resistance zone is large from 1832-1842, and there is another point that holds the June high and runs from 1878 to 1881. And if that breaks, we are likely to see some substantial change in the macro backdrop. And the next zone of interest is around the 1925-1938 zone.

Gold Daily Price Chart

Gold daily chart

A chart is prepared James Stanley; Gold in Trading View

Written by — James Stanley, Senior Technician For DailyFX.com

Connect and follow James On Twitter: @JStanleyFX

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