Gold Price Futures (GC) Technical Analysis – May Have to Retest Low to Attract Real Buyers

Gold is trading slightly lower early Thursday with no follow-through to the upside following yesterday’s strong short-covering rally. The operative word is “short-covering”. The two-day rally this week is just that. There is still no evidence of aggressive buying. This is pretty normal, however, since the first leg up following a one-month sell-off is usually fueled by short-liquidation or short-covering.

At 05:47 GMT, December Comex gold is trading $1504.60, down $3.30 or -0.22%.

At the start of the week, traders were pricing in a 20% chance of a Fed rate cut at the end of October. Furthermore, less-dovish talk from Fed officials and encouraging U.S. economic data was weighing on gold prices.

That all changed on Tuesday with the release of a report showing weaker-than-expected U.S. factory activity and on Wednesday with a report showing private employers are hiring at a slower pace. Short-sellers covered because the news drove the chances of a Fed rate cut to 75%.

The rally could pick up steam if Friday’s U.S. Non-Farm Payrolls report comes in weaker-than-expected. However, in order to truly drive gold prices higher, the chances of a Fed rate cut has to get up to at least 90%.

Daily Technical Analysis

The main trend is down according to the daily swing chart. However, momentum shifted to the upside with the formation of a closing price reversal bottom on Tuesday and its subsequent confirmation on Wednesday.

The main trend will change to up on a trade through $1543.30. A move through $1465.00 will negate the closing price reversal bottom and signal a resumption of the downtrend.

On the downside, the retracement zone support is $1489.10 to $1471.00.

On the upside, the minor range is $1543.30 to $1465.00. Its 50% level or pivot comes in at $1504.20.

The short-term range is $1566.20 to $1465.00. Its 50% level at $1515.60 is the next upside target.

Daily Technical Forecast

Based on the early price action and the current price at $1504.60, the direction of the December Comex gold futures contract on Thursday is likely to be determined by trader reaction to the minor pivot at $1504.20.

Bullish Scenario

A sustained move over $1504.20 will indicate the presence of buyers, however, we could still be looking at a labored rally due to a large number of Gann resistance angles.

We may not see a true breakout to the upside unless the buying is strong enough to take out the main tops at $1543.30 and $1566.20.

Bearish Scenario

A sustained move under $1504.20 will signal the presence of sellers. This could lead to a retest of the major retracement zone at $1489.10 to $1471.00. Buyers could come in on a test of this area since it represent value.

Side Notes

In my opinion. Professionals are afraid to chase gold higher because they have been burned doing so the last two months. They are also hesitant because they aren’t sure about Fed policy.

They are likely to be attracted to gold on a pullback into support or value areas. If this occurs then it will allow them to wait out the news without much downside risk if they are wrong.

So my best analysis suggests we are going to see a pullback into at least $1489.10 to $1471.00 before the market moves higher. Chasing the market because of a couple of potentially bullish headlines carries too much risk.

However, waiting for a break into $1489.10 to $1471.00 ahead of the U.S. Non-Farm Payrolls report on Friday may be the safest strategy.

Remember, the first leg up from a steep break is usually short-covering. Real buyers usually come in on a test of the bottom. This helps form a secondary higher bottom.