Gold Price Futures (GC) Technical Analysis – Trader Reaction to $1727.50 Sets the Tone

Gold is trading flat early Friday as appetite for riskier assets improved after a string of strong corporate earnings reports, while investors awaited the U.S. jobs report for April to gauge the economic impact of coronavirus-induced restrictions.

The precious metal gained about 2% on Thursday on the back of bleak U.S. economic data, which along with uncertainties over the global economic recovery and U.S.-China relations, lifted bullion higher by about 0.9% so far this week.

At 04:36 GMT, June Comex gold futures are trading $1726.00, up $0.20 or +0.01%.

The market was testing support on Thursday when a selloff in the U.S. Dollar Index, fueled by a turnaround in the Euro, triggered an intraday short-covering rally in gold. The catalyst behind the price action was a plunge in U.S. Treasury yields that signaled financial markets were beginning to price in a negative U.S. interest rate environment for the first time on Thursday, a place the Federal Reserve is determined not to go.

Daily Swing Chart Technical Analysis

The series of lower tops and lower bottoms indicates the main trend is down on the daily swing chart. The trend may be up on the weekly and monthly charts, but daily chart traders are approaching gold differently.

Since economies have been opening up around the world as the curve of coronavirus cases starts to flatten, gold has been trading flat. On April 7, it closed at $1683.70, on May 7 it hit a low at $1683.90. Also since it reached $1788.80, 18 sessions ago, it has closed lower 11 times.

The main trend will change to up on a trade through $1737.00. This is followed by additional main tops at $1764.20 and $1788.80.

A trade through $1676.00 will signal a resumption of the downtrend. Taking out the next swing bottom at $1666.20 will reaffirm the downtrend.

Daily Forecast

In reading the comments from readers, I noticed a common theme, the conflict between short-term traders and long-term investors. This is short-term, one-day commentary. So when I say that gold could plunge under $1657.30, I am making a short-term observation, not a long-term assessment.

I get it, fiscal and monetary stimulus is good for gold prices over the long-term, but in the short-run, investors are watching the outcome of the lifting of restrictions. That’s it plain and simple and the price action indicates this.

If you’re a short-term trader then you should be trading the short-term trend, but realize you are going against the longer-term weekly and monthly trends. I’m not stupid like some comments suggested. And I’ve heard all those comments about how bad technical analysts are especially on days that produce $40 intraday short-covering rallies.

From a trading perspective, it seems like everyone is long, but since no one ever talks about their exits, I have to assume their long gold positions are on paper. I trade like a professional. I find my exit first then look for my entry. When I make a comment like gold could plunge under $1657.30, I’m telling you my exit. I’m not predicting a bear market or encouraging you to sell, I’m just making an observation on the chart.

On Thursday, I mentioned the key level to watch was $1682.40. I also mentioned in my bullish scenario that if this level held then “look for a possible test of the wall of resistance at $1726.00, $1727.50 and $1737.50.” Well gold hit a low of $1683.90 and rallied to $1733.20.

What does it mean? It means a lot. It means that buyers are defending the main bottoms at $1676.00 and $1666.20. It also means they are defending the retracement zone at $1682.40 and $1657.30. Most of all, it tells me that if they are willing to defend this area then it must be pretty important to the structure of the market over the near-term. And that takes us back to the last number on the list $1657.30.

Based on the early price action, the direction of the market the rest of the session on Friday will be determined by trader reaction to the 50% level at $1727.50. Trader reaction to this level will determine whether the buyers or the sellers will be in control. Of course, it all depends on the volume at this area and I can’t see that at 05:18 GMT, you have to watch the price action and read the order flow at this level.