XAU Election Breakout Drives Fresh Highs

Gold, GLD, GC Price Analysis

Gold Technical Forecast: Bullish

Gold prices broke out of the falling wedge pattern this week on the way to fresh seven-week-highs.
The US Dollar put in an aggressively bearish move on the back of US election results, helping to further drive the topside move in risk assets, Gold included.
Gold price action is currently holding resistance at a spot looked at earlier in the week, around the 1960 level. Will buyers be able to continue pushing the envelope through next week’s open?
The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

We are almost at the three-month-mark from when Gold prices had topped-out; and that was a stark change-of-pace in trends when the red-hot bullish breakout from earlier this summer turned around on a dime.

It was in these weekly technical forecasts that I warned of a potential pullback at the top of that move. On Friday August 7th, the same day that Gold prices set their current all-time-high, Gold closed the daily bar with a bearish engulfing pattern. Such formations will often be approached with the aim of bearish continuation, and given just how overbought that move had become, it made sense that prices would face a pull back.

But price action did more than pullback after that bearish engulfing formation showed up: The week after saw Gold prices give back as much as 10%; or a little more than 50% of the June-August bullish breakout.

To learn more about bearish engulfing patterns, check out DailyFX Education

But, support came in at a confluent spot on the chart, running from the 1859 level up to the 1871 level; the latter of which is the 50% marker of the June-August breakout and the former coming in as the 23.6% retracement of the 2018-2020 major move. That support zone, shown in blue below, also came into play to help hold the lows in September, and then again in later October. In that last test, ahead of the election, Gold prices even set a higher-low, above the September inflection, highlighting the potential for a bullish breakout ahead of the US election, which happened this week.

Gold Price Daily Chart

Chart prepared by James Stanley; Gold on Tradingview

Recommended by James Stanley

Download our Q4 Gold Forecast

Taking a step back, and the bullish backdrop in Gold remains on strong footing, even with three months of digestion. As looked at previously, the current bullish cycle in Gold spans back to Q4 of 2018; and since then, there’s been a pattern of strong bullish moves followed by months of digestion, often taking on the form of a falling wedge or a bull flag.

On the below chart, I’m highlighting three such scenarios since Q4 of 2018: Each iteration saw approximately three months of digestion before the bigger picture bullish trend went for that topside breakout.

To learn more about falling wedges, check out our chart patterns section in DailyFX Education

Gold Price Weekly Chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Bullish Breakout – Can Buyers Drive?

At this point, we have a fresh breakout from the falling wedge pattern with Gold price action sitting at a fresh seven-week-high. This can keep the door open for further gains, especially if one takes a look at the US Dollar which appears primed to test the vaulted 92.00 level of support. But – this week’s price action in USD has presented a bearish engulfing candlestick and, similar to what was looked at in Gold in early-August, this can keep the door open for further losses which, correspondingly, can help to make the bullish side of Gold look even more attractive.

US Dollar Weekly Price Chart – Bearish Engulfing around US Election

Chart prepared by James Stanley; Gold on Tradingview

Gold Technical Forecast: Bullish

For next week, the technical forecast for Gold will be set to bullish. There may be a bit of shake in the move, particularly in the early part of the week as both Gold and USD are relatively stretched. Taking the fact that USD is so near a big support level after making a sizable move this week, and there could be scope for short-term pullbacks which could equate to a similar scenario in Gold prices.

If Gold does pullback, support potential exists around 1933 (prior October high), 1920 (prior all-time-high) or perhaps even 1900.

Above current price action, resistance is already playing in off of the 1960 level, which was a prior swing-low looked as potential resistance ahead of the breakout earlier this week. Beyond that, 1979 looms large and then the 2k psych level may come back into play. Interestingly, that 2k level has seen little support or resistance yet. But, if bulls are able to continue pushing the breakout, this is a level that could quickly come back into play. And beyond that, we’re looking at potential resistance around 2016 before the prior all-time-high comes back into play.