Gold prices continue to decline as XAU/USD breaches loom.

Oct 18, 2022
VOT Research Desk

Market Analytics and Considerations

Gold has continued to maintain close to recent lows even as markets have started to make an effort to rebound from last week’s sell-off and US rates have remained high.

After bouncing about the Q4 open for the prior two weeks, bears made a noticeable comeback last week. The 1680 level aided in cauterizing resistance, though whether traders can go on the move now is the key factor.

Contrary to what we’ve seen in stocks, which was a strong bullish response after the S&P 500 printed fresh lows last Thursday, gold price action has seen consolidation over the past few days.The 10-year note is still in danger of breaking out of the 4% level, despite the fact that US yields have remained relatively strong. Since the S&P 500 and Nasdaq have both started the week with strong rallies, this doesn’t seem to be alarming equity traders right now. However, as was discussed yesterday, a Monday pullback from that move is not out of the question given the increasing frequency of Friday sell-offs.

However, there hasn’t been much counter-trend movement in gold prices lately. As was discussed last week, gold still relies heavily on the 1680 level, which served as resistance all week until the Thursday CPI report, at which point bears attempted a new lower low. The recent bounce move found support at the 78.6% Fibonacci retracement, which has since assisted in maintaining the lows; However, the combination of a bearish trend line and that support creates a short-term descending triangle that keeps the door open for short-term bearish breakouts, with the goal of reaching 1635-1637 before the two-year low is reached.

GOLD Suitable alternative Possibilities

 I’ve been discussing this in recent gold articles, but the breakout strategy for bearish biases appears to be particularly challenging. And counter-trend moves, like the one we saw in late September and early October, can be vicious setups that last a while, as the previous bounce went from zero to more than $100 in a week.

There are a number of possible resistance levels with which to work in order to implement a bearish setup on gold.

The bearish trend line and the 1666 Fibonacci level meet in the very short term. Above that, the same 1680 level from last week appears, and a short-term “r3” zone of resistance at 1690-1694, which reached its peak early last week, appears. We might be in for one of those deeper retracement scenarios if price action moves above the psychological level of 1700.

GOLD BROADER VIEW

The backdrop for gold remains bearish looking at the big picture. A double top formation began to fill in in the late Q3 trade, paving the way for a larger-picture bearish gold theme.

As evidenced by the congestion on recent downside breaks and the tendency for prices to pullback and test for resistance in that previous zone of support, the support zone that stretches from 1680 to 1700 has been in place for two years. Due to the fact that the door has only begun to open on what may be the filling-in of a longer-term bearish theme, this gives the impression that we haven’t actually seen capitulation yet.

Breaks of the September two-year low paved the way for a decline toward the 1567 50 percent mark of the 2016-2020 major move. There is also a historical reference there because that price was also the highest of 2019.

Gold (Daily) Moving Averages

PIVOTS