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Gold takes a tumble on FED outlook, but the near term bull case is still very much alive (GOLD, $GLD, $GC_F, $DXY)

Gold took a tumble yesterday in sync with wider equities markets following the interest rate announcement by the Federal Reserve. Sentiment towards gold was rather bullish ahead of the 25 point rate cut which was thought to be largely priced in. However, comments by Fed Chair Jerome Powell suggesting this cut may be a one-off resulted in a market sell-off as the dollar gained strength.  Gold, followed suit finally breaking down through a trend line the precious metal has largely respected throughout July.

But is all lost for the bull case in the short term? I think not.

Looking at the 1-hour chart, another key trend line (thick black) has so far remained intact.  This line currently requires price action remains above $1400. Likewise, there’s key horizontal support between $1400 and $1404. Even more positively, there’s a Bull Flag (purple shading) that could signify further highs are on their way sooner than you think. If anything, price action is currently in a no-mans land working out its next move.  Below $1404 and the action looks bearish, and a breakout above $1414 gives bulls something to cheer.

Another encouraging sign is Positive Divergence between lower highs and a rising Relative Strength Index (RSI). This is marked in blue on the chart and I have highlighted the previous occasion there was a clear positive divergence between price and RSI two weeks ago. Price action subsequently saw gold sky-rocket into the $1450s. It’s also worth noting negative divergence occurred in the lead up to yesterday’s FED announcement – It seems the writing was on the wall for an imminent pullback regardless of economic chatter.

Finally, the MACD is also rolling over into a more positive direction which suggests some kind of recovery on the hourly chart.

To summarise, if we see a recovery $1414 is a key level to break above. $1420-$1425 will also likely offer sizeable resistance. That then leaves $1435 which was hit yesterday just before everything fell apart.  With $1430 signaling a positive exit from the bull flag, the next run may well find $1435 of little concern. Previous highs of $1445 are then in sight, with trendlines suggesting a final target of around $1460 for this potential leg.

To the downside, failure of $1400 will be met with some support at $1395 and the $1385 area.

Valuethemarkets.com and Dynamic Investor Relations Ltd are not responsible for the content or accuracy of this article.  News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

  • Stuart Langelaan currently holds a position or positions in the stock(s) and/or financial instrument(s) mentioned in the piece.
  • Stuart Langelaan has not been paid to produce this piece by the company or companies mentioned above.
  • Dynamic Investor Relations Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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