Gold Softens Fractionally But Does Not Experience Major Technical Chart Damage

Decoding Gold’s Intriguing Patterns: Doji Candlesticks and Potential Market Indicators

After an exceedingly strong performance in gold futures, the most active February 2024 contract traded to a higher high than yesterday. However, unlike recent days, pricing during the current session moved well below the daily highs and briefly traded negative on the day.

As of 11:32 AM EST, February gold is fixed at $2061.80 down $0.50. With New York futures still actively trading, we could certainly see the candlestick type that is currently identified as a doji, morph to a Japanese candlestick type that no longer has a near-equal opening price to its closing price. As of 12:10 PM EST, gold futures have moved off the recent lows and are currently fixed at $2064.70 after factoring in a gain of $1.10.

What is interesting is the identification of a single Japanese candlestick which can be identified as a doji. This candlestick type can indicate a couple of different scenarios. It can be an indication of a market that is about to enter a period of consolidation. However, because the doji opens and closes roughly at the same price it is a visual representation that neither the bullish nor bearish faction, has strong control over the price movement. More importantly, this single candlestick type when combined with other candles can form a much more complex pattern signaling the potential for a price pivot, continuation, or exhaustion.

Gold’s Market Sentiment and Federal Reserve Insights: Assessing Today’s Trends

While we remain exceedingly bullish, we have acknowledged that at any point traders can pull profits by covering longs, which can only be accomplished by offsetting the position with a sell order. This takes pricing lower and typically occurs as traders initiate a round of profit-taking. At this point, there is no evidence to definitively support that this current daily candle will be the forerunner to a key reversal or a period of consolidation.

By the close of New York, it could easily change into a small green or red candle. Over the last 12 trading days beginning on November 13 when gold traded to an intraday low of $1955, eight of those trading days resulted in green candles (a candle which closes above the opening price), three small red candles, and two doji (that is if today’s current doji candlestick closes with an open and closing price that are exact or a few ticks apart).

Dollar strength on a percentage basis is roughly 3 times the current percentage decline in gold. As of 12:30 PM EST, gold futures are fixed at $2065.80 after factoring in a net gain of $0.80 or 0.03%. The dollar is currently up 0.09% taking the index above yesterday’s close to its current value of 102.74. This indicates that there is fractional buying, and the modest strength of the dollar has created headwinds for gold that were easily overcome by buying in gold.

Although changes in gold prices today can be best described as tepid, the key fundamental factors that initially moved gold during the last leg of this rally are still fully intact, and perceived by market participants as an accurate depiction. It is still widely believed that the Federal Reserve has most likely concluded its aggressive cycle of interest rate hikes that began in March 2022. The next FOMC meeting is set to begin in 14 days and currently the probability that the Federal Reserve will maintain its current interest rate is 95.8%, with a fractional minority of 4.2% predicting a ¼% rate hike.

However, the largest reveal over the last few days was made by Governor Christopher Waller, a voting member of the Federal Reserve who alluded to the potential for the Federal Reserve to begin its cycle of cutting rates as early as the second quarter of next year provided that recent declines in inflation will continue as the Fed gets closer to its 2% inflation target. As a more hawkish Federal Reserve official, his statement about rate cuts carries significant weight in that he would typically not be the first person to be on record putting a more concrete timeline to when the Federal Reserve will begin a series of rate cuts.

Gold Price Forecast

Regardless of the outcome of gold’s price changes today, I remain exceedingly bullish, and I am looking at the upper levels of resistance that could easily be challenged beginning at $2080 and then again just above $2100 per ounce. That being said, it is also highly probable that at some point over the next couple of weeks, gold prices could pull back or begin to trade in a range-bound sideways manner. If this occurs, I believe that it will be a precursor to a rally returning in gold, taking it even higher.

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Wishing you as always good trading,

Gary S. Wagner