Gold Keeps Shining in October, But For How Much Longer?

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Gold Keeps Shining in October, But For How Much Longer?

If you just look at the price action of gold (xau/usd) in October, you would say that it is bullish, up 5.6% from 1183 to 1249.70. It has indeed been putting in higher highs and higher lows, and weak US data in inflation, retail sales, and manufacturing softened the USD across the board. Then good jobs data and decent production data failed to give the USD any spark. The dynamics between fundamental data and price action suggests the USD is indeed exhausted and is in a period of consolidation/correction.

Gold (XAU/USD) 4H Chart 10/17
gold 4h chart 10/17

(click to enlarge)

From a technical standpoint, we are seeing the conditions in the 4H chart shift from bearish to bullish as price breaks above the 200-, 100-, and 50-period simple moving averages (SMAs). The RSI shows loss of bearish momentum as it pushes above 60, but it does not show strong bullish momentum since it did not push above 70, yet.

The swings of the USD has been dominating the currency markets, and although there is some room for further USD-weakness in the short-term, it is possible that October’s mode has only been a correction. If so, when should we expect gold to find resistance? Let’s take a look at the daily chart.

Gold (XAU/USD) Daily Chart 10/17
gold daily chart 10/17

(click to enlarge)

From the daily chart, we should note a couple of things first.
1) The prevailing trend since July’s high of 1345 was a downtrend until the 1183 low in October. (1183 is essentially in the 2013-2014 consolidation support area).
2) This week, we had a strong daily candle on 10/15 which ended up being a bullish engulfing candle. This is a bullish continuation signal.

Now as far as resistance levels ahead, we should note that price is currently testing the 38.2% retracement, a previous support pivot in June, and almost the 50-day SMA.

The next resistance will be between 50% and 61.8% fibonacci retracement levels. Here, around 1274, price will also encounter a falling trendline from 1345 and the 100-day SMA. We can also see that this is a support/resistance pivot in August, and a common support during the April-May consolidation.

There is an interpretation of the RSI that during a downtrend, if it comes back to 60, it should stay below 60 and dip again. So if price does approach 1274 and stall while the RSI also stalls around 60, get ready for a bearish continuation attempt.

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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.