Gold Technical Updates

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Gold (XAU/USD)

Gold

There is a lot of volatility going both ways in gold. After a historic decline on Wednesday, the market slowed down on Thursday, and bounced back sharply on Friday to end the week. We are now at 1827.20, just below 61.8% retracement (1831.95) of the entire slide from 1911.60 to 1703.10.

  • The 5-wave structure coming down last week suggests the correction period has just started, and it was just wave A. Now, the market can be in a zig zag ABC pattern sliding further lower if the volatility can be maintained at such an violent level. This would be likely if there is strong risk appetite through the week.
  • Otherwise, we should be flattening, or even be developing a triangle if volatility is to quiet down.
  • After such a wild week, traders might slow down in anticipation of the Non-Farm Payroll for the US that comes out this Friday. Economists are not expecting anything strong, and in fact a slide from 117K in July, to 90K in August.
  • Traders haven't forgotten that gold is still safe haven king while the global economy continues to sputter, so there is more upside bias from the fundamental standpoint given a negative expectation of the NFP.
  • The 4H chart also shows gold trading above the 200SMA, and essentially respecting a rising channel support. Technically, the bullish stance is still there despite some bearish momentum.
  • Therefore, in anticipation of further consolidation and bullish bias, an ascending triangle could be the preferred structure.
  • Or we can have a symmetrical triangle that is tilted to the upside.
  • If the market has some extra risk aversion during the week, we might get a rising wedge development.
  • Still, it is too early to say since the candlesticks going up have been almost as strong as the ones coming down. Some slowing in price action will help the case for a triangle.
  • For now, if the resistance stands at 1832, we can anticipate a symmetrical triangle. Otherwise, if the market rises to 1870 or nears 1900 before finding resistance, we are likely to have more of an upside tilted, or ascending triangle. Only a break above 1911.60 suggests a rising wedge scenario.
  • If if the market at any point starts to hold above 1800, then our consolidation scenario could be short-lived.
  • It should be noted that, with most instruments, we tend to complete consolidation prematurely and are susceptible to continuation traps. For gold however since the global recession, corrections have been short-lived.

 

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Fan Yang CMT
Chief Technical Strategist
FXTimes