5 Signs for Spotting a Reversal in Gold (XAU/USD)

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5 Signs for Spotting a Reversal in Gold (XAU/USD)

Gold has been bearish, but price action this week has so far indicated a possible reversal. At the moment, it would be premature – so what clues will help us spot a reversal with more confidence?

Gold (XAU/USD) 4H Chart 10/8
gold 4h chart 10/8
(click to enlarge)

Starting with the 4H gold chart, we can see price fell after the Non-Farm Payroll, but has since recovered to levels before the NFP. This suggests that the bearish attempt following the NFP could be an exhaustion push. This is the 1st clue, but again it is premature. Here are 5 clues that can help us spot a reversal:

1) Price should at least pop up above the 100-, and 50-period simple moving averages.
2) If price can start trading above 1200, and stay above the the noted SMAs, we have additional clues that bulls are taking over.
3) The 4H RSI should at least break above 60 to show loss of bearish momentum. A break above 70 would indicate bullish momentum.
4) If the 4H RSI then starts holding above 40 after dips, we can say that bullish momentum is developing.
5) Price should at least break above 1223 to clear a previous resistance pivot and October high.

If these 5 conditions are met, we can consider a bullish correction in play. In this scenario, where can we expect the rally to go to? When we look at the daily chart, we can see that first of all, we have what’s called a “Piercing Pattern” for the 10/3 and 10/6 candles. We also have a bullish divergence between price and the RSI which was at oversold levels. These two signals are considered weak signals, so we should mind the 5 mentioned above. If price does push above 1220, we can consider the 1240-1240.50 area as the first target. Above that, we should anticipate resistance as price approaches 1270, a support/resistance pivot area within the cluster of the 200-, 100-, and 50-day SMAs.

Gold (XAU/USD) Daily Chart 10/8
gold daily chart 10/8

(click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.