Gold Price Futures (GC) Technical Analysis – Short-Covering Rally Stopped by $1529.20 to $1537.90 Retracement Zone

Gold is trading sharply higher on Thursday in reaction to extremely dovish European Central Bank monetary policy decisions. The rally is being fueled by the announcement of a massive new bond-buying program by the ECB in an effort to stimulate the troubling Euro Zone economy.

The ECB also cut its main deposit rate by 10 basis points to -0.5%, a record low but in line with market expectations. Additionally, the ECB changed its TLTRO (targeted long-term refinancing operations) rate to provide more favorable bank lending conditions and match that of its refinancing rate, erasing a previous 10-basis point spread.

At 12:47 GMT, December Comex gold futures are trading $1529.10, up $26.00 or +1.74%.

Gold is rallying despite a spike higher in the U.S. Dollar Index, which is unusual because a stronger U.S. Dollar tends to weaken demand for dollar-denominated gold. The move is being fueled because of the decline in the already lower negative interest rates. Gold doesn’t pay interest but a zero return is better than a negative return.

Gains are likely being limited because U.S. rates may go down, but the Fed is far from turning to the negative side. Furthermore, there is renewed hope of a trade deal between the U.S. and China.

Daily Technical Analysis

The main trend is down according to the daily swing chart. Today’s rally is only a retracement of the recent break. It’s not even a shift in momentum to the upside.

A trade through $1492.10 will signal a resumption of the downtrend. A move through $1566.20 will change the main trend to up.

The short-term range is $1566.20 to $1492.10. Its retracement zone at $1529.20 to $1537.90 is potential resistance. Trader reaction to this zone will determine the near-term direction of the gold market. Sellers are going to try to form a secondary lower top.

The first main range is $1412.10 to $1566.20. Its retracement zone at $1489.10 to $1471.00 is major support.

Daily Technical Forecast

Based on the early price action and the current price at $1529.10, the direction of the December Comex gold futures market the rest of the session on Thursday is likely to be determined by trader reaction to the uptrending Gann angle at $1528.10.

Bearish Scenario

A sustained move under $1528.10 will indicate the presence of sellers. The first downside target is a downtrending Gann angle at $1518.20. Crossing to the weak side of this angle will indicate the selling is getting stronger. This could trigger a break into the uptrending Gann angle at $1498.40. This is followed by the major retracement zone at $1489.10 to $1471.00.

Bullish Scenario

A sustained move over $1528.10 will signal the presence of buyers. This could lead to a test of the short-term 50% level at $1529.20, the short-term Fibonacci level at $1537.90 and the downtrending Gann angle at $1542.20.

Overtaking $1542.20 will indicate the buying is getting stronger. This could trigger a further rally into a pair of downtrending Gann angles at $1554.20 and $1560.20. The latter is the last potential resistance angle before the $1566.20 main top.