Gold price setup: Can stretched long positioning in XAU/USD trump technicals?

Gold, XAU/USD: Price action & sentiment

Gold is at a critical juncture - stretched retail traders’ long positioning poses downside risks to XAU/USD. However, if the past is any guide, the yellow metal may not be ripe for a bearish break just yet.

The IG client sentiment (IGCS) chart

The IG Client Sentiment (IGCS) shows 72% of retail traders are net-long with the ratio of long to short at 2.6 to 1. The number of traders net-long is 6.4% higher from last week. The IGCS data at times functions as a contrarian indicator – the fact traders are net-long suggests gold may continue to fall.

XAU/USD daily chart

The technical setup remains broadly unchanged from the previous update.

On the daily chart, gold remains above quite a strong cushion around 1930, including an uptrend line from the end of 2022, the 89-day moving average, and the lower edge of the Ichimoku cloud. The colour-coded candlestick daily charts show the current trend is a consolidation within the overall bullish structure.

XAU/USD 240-minute chart

Interestingly, the 14-day Relative Strength Index (RSI) is attempting to form a base – the previous retreat earlier this year terminated with a similar setup (see the daily chart). For a material rebound to occur this time around, XAU/USD would need to clear the immediate ceiling around 1980-1987 (including the 200-period moving average on the 240-minute chart and Friday’s high).

XAU/USD 240-minute chart

Until then, the bearish setup on smaller and higher timeframes could dominate. The 240-minute colour-coded candlestick charts show XAU/USD remains in a broadly bearish phase.

XAU/USD daily chart

Any break above 1980-1987 could expose upside scenarios toward 2020 or even 2048. On the downside, a decisive break under 1930 could open the door toward the 200-day moving average (now at about 1840).

XAU/USD monthly chart

_{*Note: In the above colour-coded chart, blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.}