Ahead of the Fed, the Gold Coil Continues

Gold talking points:

Gold prices retreated from last week’s breakout.

big picture trend is still pending in gold as the bullish flag is free. Fed will meet next week for the expected tapering announcement and gold performance, which may indicate trends in the coming months.

analysis contained in the article is based on price action AND chart formations. For more information on price action or chart patterns, take a look at our DailyFX Education section.

re was a quick wave of excitement that ended last week, and also continued this week as gold prices began to threaten a bullish breakout. But as has happened so many times over the past year, that breakout did not hold, the bulls pulled back, and prices fell back to where they were before the full episode began.

Taking a look at the long-term chart, it becomes obvious why so many are waiting for this gradual trend move to take advantage – there appears to be significant potential if and when it will happen. On the fundamental front, there has been a lot of talk lately about stagflation and this is an environment where metals have traditionally outperformed. If we go back to the 1970s, when stagflation was rampant in the US, equity markets underperformed gold, 77% versus 1,426.75%.

This is also one of the reasons many have been so optimistic about gold following the central bank’s response to the global financial meltdown, the prospect of strong inflation figures on the way as growth has remained stagnant. only problem: those strong inflation figures have never really shown up, at least not in the data, but they are starting to show up now.

From a technical point of view, there is also a bullish outlook. When the Fed began to move from a bull cycle to a cut-off phase in 2018/2019, gold prices began the uptrend that reached a new all-time high on August 7.ns. And for the year and the next two months, gold prices have maintained a bearish channel, forming a bullish flag. This formation is holding today, but the bulls have been hit by a steady series of false breakouts.

Find out more about bull flags, see DailyFX Education

Weekly Gold Price Chart

Table prepared by James Stanley; Gold on Tradingview

Gold: another formation appears

In the final months of digestion, another formation appeared last week and began to take on some bullish overtones as prices rose above the 1800 level and set a new six-week high. Gold returned a large part of that bullish momentum on Friday, but that ground rebounded in Monday’s trading. Buyers failed to hit a new high yesterday and price action has fallen below the 1800 mark since then.

At this point, there appears to be some support showing previous resistance taken by the symmetrical wedge that I had analyzed last week. This could keep the door open for a potential upside, but traders will likely want to be very careful considering the number of false breakouts to the upside that have been showing in gold recently.

More information on the symmetric triangle, see DailyFX Education

Four hour gold price chart

Table prepared by James Stanley; Gold on Tradingview

Gold strategy: short term

At this point, fundamentals are the focal point – if the uptrend turns back to gold, we will likely need more items indicating stagflation or a similar environment may be approaching. One thing you could really blame for this argument is the Fed’s withdrawal from rate hikes, which seems like a distant prospect at this point.

But it was the push toward expansionary monetary policy in the 1970s that entrenched the stagflation environment, and while there is little argument that the Fed was deeply in disagreement with expansionary policy, the game could turn with increased growth. inflation.

In the short term, maintaining support around the trend line projection may keep the door open for upside strategies, assuming that the recent series of higher highs and lows may be a sign of future strength.

– Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow Jaime at: @JStanleyFX

Read also US 2-year yields exceed 0.40% for the first time since the pandemic

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