Last Friday, Gold skyrocketed as we got some defensive positioning into the weekend due to some expectations that Israel could start a ground offensive in Gaza and that could have led Iran to join Hamas with uglier scenarios becoming likely from that point onwards. Moreover, the University of Michigan Consumer Sentiment report saw a big miss across the board with the inflation expectations figures spiking back up. The higher inflation expectations figures could keep the market on the more hawkish side, with the strength in US Dollar and real yields weighing on Gold.
The actual events in the Middle East fell short of expectations as we haven’t got a ground operation and, although we got mixed signals, it seems like Iran is not intentioned to join this war “provided that Israel does not dare to attack Iran”. This could lead to a selloff in Gold as traders unwind their defensive positions.
Gold Technical Analysis – Daily Timeframe
On the daily chart, we can see that we got a huge rally last Friday with the price breaking above the key resistance around the 1885 level where we had the confluence with the red 21 moving average and a Fibonacci retracement level. The price is now getting rejected from the key trendline around the 1925 level where the sellers are stepping in with a defined risk above the trendline to position for a bigger selloff back to the lows.
The price is also overstretched, as depicted by the distance from the blue 8 moving average. In such instances, we can generally see a pullback into the moving average or some consolidation before the next move.
Gold Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that from a risk management perspective, the buyers would be better off waiting for the price to come back down to the broken resistance now turned support around the 1885 level where we have also the confluence with the trendline, the 38.2% Fibonacci retracement level and the red 21 moving average.
This is where the buyers should step in with a defined risk below the support to position for another rally and target the break above the major trendline. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the lows.
Gold Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the key trendline and the key support around the 1885 level. We might even see the price breaking already above the key trendline and leading to more buyers joining the rally, but the risk to reward would be far worse compared to the 1885 support.
Upcoming Events
This week is a bit empty on the data front. Tomorrow we will get the US Retail Sales data and it will be interesting to see if the worse consumers’ sentiment translated into weaker spending. On Thursday, we will see another US Jobless Claims report where the market will want to see if the miss in Continuing Claims last week was just a blip or something is starting to deteriorate in the labour market.
On the same day we will also hear from Fed Chair Powell with the market being attentive to any type of signal on the upcoming rate decision. Gold is likely to remain supported in case the data comes out much worse than expected. On the other hand, strong readings should weigh on Gold, especially if the situation in the Middle East de-escalates.
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