Is gold primed for a prolonged period of upside?

With gold breaking higher from trendline support there are signs that we could have seen the market bottom out. However, with key resistance up ahead, this view has some hurdles to overcome first.

Gold
Source: Bloomberg

Gold has been gaining ground over the past week, with the price rising from a crucial area of support. The long-term picture portrays a gold market that could be on the cusp of a prolonged period of upside, given the continued uptrend that has been in place since the market bottomed out in December. The creation of higher highs and higher lows evident on the weekly timeframe highlights the fact that the weakness we saw throughout September is likely to be a retracement of the rally from $1205. With the price having retraced 61.8% of that $1205-$1357 move, there is a good chance we are seeing the beginning of the next leg higher for gold.

The weekly chart below highlights the existence of a crucial trendline confluence, which appears to have provided sufficient support for the market to push higher from here. With the price having engaged the $1296 resistance level this week, it is worth noting that the $1296-$1303 zone represents a crucial area that needs to be broken to provide greater confidence that this move will sustain. 

Gold weekly price chart

On the daily chart, it is clear that the $1296-$1303 zone is going to be an important one, with the 50-day simple moving average (SMA) accompanying those previous peaks to form a notable hurdle that needs to be overcome. A move through $1303 would point towards a period of further upside.

Gold daily price chart

Looking at things from a shorter-term perspective, the four-hour chart clearly highlights a break from the downtrend of September. Here the price is breaking trendline resistance, before pushing above the $1282 and $1290 swing highs. We are now clearly forming higher highs and higher lows, which means that intraday retracements could be viewed as buying opportunities, as long as the price does not break below the most recent swing low. On this occasion, that level is $1284. Taking a look at the wider picture, there is a good chance that any such break out of this recent uptrend could point towards the market turning lower in a more meaningful manner from the $1284-$1303 zone. As such, watch out for the continuation or breakdown from this current bullish reversal as a sign of whether we are set to push through resistance or respect it for another move lower. 

Gold 4 hour chart

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.