Gold finally set for bullish breakout

After a sharp BOJ-inspired drop this morning, Western equity markets were able to turn slightly higher in the afternoon. Sentiment was partly boosted by the still-rallying oil prices as well as robust earnings from Facebook which helped to lift the social network to a fresh all-time high. Other commodities also rallied as the dollar sold off on the back of a weaker-than-expected first quarter US GDP estimate. This helped to push expectation about the next Federal Reserve rate increase further out, boosting the appeal of non-interest-bearing precious metals in particular, some of which had already been in high demand. Gold, silver and platinum ignored the rebound in stock markets and rallied across the board, with the latter breaking out to a new high above last week’s peak of $1042, thus triggering further momentum buying interest. Silver was approaching $17.70, a key level which we highlighted in one of our reports on Wednesday HERE.

At the time of this writing, gold was testing one of its own key resistance area between $1263 and $1269, a range which had previously been resistance. While it is possible that gold’s rally may again come to a halt here, the underlying price action suggests that a bullish breakout may actually be the outcome instead. As can be seen, the precious metal has already broken above a short-term trend line and it has made some higher lows within the consolidation pattern. The momentum indicator RSI has worked off "overbought" conditions through time rather price, which is bullish. What’s more, the RSI has broken its own corresponding bearish trend line now. Furthermore, the faster 21-day exponential moving average is once again pointing higher and is holding above the 50-day simple moving average, which in turn is comfortably above the rising 200 SMA now. All of these indicators suggests that the bullish momentum may be accelerating again.

If gold does break higher as the above technical indicators suggest it might, then the next potential leg higher could be explosive. That is because the sellers were not even able to push gold down to re-test some of the longer-term technical levels following its initial rally earlier in the year, such as the 200-day moving average at around the $1145/6 area. The relatively-shallow pullback after a prolonged period of consolidation near the highs basically implies that the buyers were more in control compared to the sellers. A breakout above the previously-mentioned resistance area of $1263-$1269 would initially target the recent multi-month high at $1284/5. Thereafter, the Fibonacci extension levels of the most recent pullback come into focus at $1305 (127.2%) and then $1331/2 ($161.8%).

But let’s not get too far ahead of ourselves and wait for gold to actually break higher before thinking about its next likely move. For all we know, all it takes is one large sell order to trigger a change in momentum and sentiment. Indeed, if gold were to break back below the broken resistances such as $1250 or $1230 then a pullback to at least $1200 would then become highly likely. But whichever direction gold eventually decides to break, it should offer plenty of trading opportunities.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.