Gold price outlook: XAU/USD rally stalls at resistance

Gold price talking points

• Gold breakout stalls at critical resistance range for the fourth consecutive week
• Broader advance remains vulnerable near-term while below $1526

Gold prices rallied nearly 23% off the yearly lows last week with the advance failing to stabilise above a critical resistance barrier we’ve been tracking for months now.

While the broader outlook remains constructive, the advance may be at risk near-term after the price failed a fourth attempt to mount this key threshold. These are the updated targets and invalidation levels that matter on the XAU/USD weekly price chart.

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Gold price failed to close above critical resistance confluence again

Gold price failed to close above a critical resistance confluence for the fourth consecutive week on Friday. The focus remains on $1522-$1526 - a region defined by the late- 2011 and late- 2012 lows (now also the September open). Note that a pair of uptrend resistance slopes also converge on this threshold and further highlight it technical significance – a weekly close above is needed to mark resumption of the broader uptrend targeting 1558 and the 61.8% retracement at 1586.

Initial support rests at the highlighted trendline confluence around 1465 with medium-term bullish invalidation set to the 100% extension of the 2016 advance at 1451. Weakness beyond this threshold would do considerable damage to the uptrend in bullion prices.

Where next for gold prices?

Gold is coming off massive resistance up here at 1522/26- the risk remains for a larger pullback while below this threshold. From at trading standpoint, we’ll continue favouring fading strength into this zone targeting a test of the lower parallel - look sideways to lower for now. Ultimately a larger set-back may offer more favourable long entries closer to trend support.

Gold trader sentiment – XAU/USD price chart

• A summary of IG Client Sentiment shows traders are net-long gold - the ratio stands at +1.87 (65.1% of traders are long) – bearish reading
• Long positions are 1.4% lower than yesterday and 2.1% lower from last week
• Short positions are 1.8% higher than yesterday and 4.3% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests gold prices may continue to fall. Traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed gold trading bias from a sentiment standpoint.