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Gold Technical Analysis - Gold Trading: 2016-10-31
Gold and US dollar index took no notice of US GDP growth
Gold price advanced on Friday while US dollar for Q3 fell despite strong US GDP data for Q3. Majority of investors believe the Fed is to hike the interest rate on December 14 but its next hike may be not soon after that. Will gold prices continue advancing?
UD GDP for Q3 2016 rose 2.9% ion annual terms after the 1.4% rise in Q2. This is above the consensus forecast of +2.6%. Nevertheless, US dollar index edged lower which pushed up gold prices. As a rule, these to assets are negatively correlated. Investors consider gold to be an alternative to investments in US currency and financial instruments. The main reason for disregard of strong GDP data may be weak reaction of interest rate futures. The chances for the Fed rate hike at December meeting are almost unchanged at just below 80%, according to FedWatch. Additional negative was the lower Consumer confidence index by Michigan University for October while its increase was anticipated. According to consensus-forecast, the average gold price is to reach $1300 per ounce in Q4 2016 and $1331 in 2017. Meanwhile such banks and companies as Bank of America Merrill Lynch, RBC Capital Markets, JPMorgan and some others believe the average gold price may be much higher next year near $1500 an ounce. So they forecast the average gold price to be around $1400 an ounce in Q4. This is far above the current prices.
On the daily chart XAUUSD: D1 is within the rising channel. It has surpassed the 200-day moving average. Further growth is possible in case of higher demand from world central banks and major hedge funds together with their lower demand for dollar assets.
- Parabolic is giving bullish signal.
- Bollinger bands are narrowing which means lower volatility.
- RSI is above 50 but is far from overbought zone. No divergence.
- MACD is giving bullish signals.
The bullish momentum may develop in case gold surpasses the last fractal high and resistance of the rising trend at 1280. This level may serve the point of entry. The initial stop-loss may be placed below the three last fractal lows and 5-month low at 1240. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 1240 without reaching the order at 1280, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis
| Position | Buy |
| Buy stop | above 1280 |
| Stop loss | below 1240 |
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