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Gold Prices Rise Within Ascending Channel, is XAU/USD’s Next Leg Lower?

Gold, XAU/USD, Treasury Yields, US Retail Sales, Technical Analysis – Talking Points:

  • Gold prices pause gains, but XAU/USD remain in a near-term uptrend
  • Eyes shift to US retail sales and University of Michigan sentiment data
  • Gold’s next leg within an Ascending Channel could be to the downside

Gold prices marked time over the past 24 hours, pausing the aggressive rise seen earlier this week. The anti-fiat yellow metal tends to inversely follow the US Dollar and Treasury yields. The Greenback leveled out following losses on Wednesday. US government bond yields remained depressed towards the longer maturity spectrum. Front-end rates were slightly higher.

Hawkish Federal Reserve monetary policy expectations have been somewhat leveling off since earlier this week. More than one rate hike by the end of next year has now been priced in, but the odds of a second one stopped rising. This has likely been offering XAU/USD some breathing space of late. The non-interest-bearing asset tends to perform poorly when returns on fixed-income assets increase.

Over the remaining 24 hours, gold will be closely eyeing US retail sales and University of Michigan sentiment data. While outcomes continue to broadly surprise to the downside, this has been by an increasingly shrinking margin since the middle of September. Still, a negative result could hinder hawkish Fed bets, offering further upside room for the yellow metal.

Check out the DailyFX Economic Calendar for more key events!

Gold Technical Analysis

On the 4-hour chart below, gold appears to be trading higher since late September within the confines of an Ascending Channel. It’s latest test of the ceiling could warn that the next leg of the uptrend is lower. This also follows negative RSI divergence, showing that upside momentum is fading. A turn lower could place the focus on the 20-day Simple Moving Average for support.

XAU/USD 4-Hour Chart

Gold Prices Rise Within Ascending Channel, is XAU/USD’s Next Leg Lower?

Chart Created Using TradingView

Gold Sentiment Analysis – Neutral

According to IG Client Sentiment (IGCS), about 69% of retail traders are net-long gold. Upside exposure increased by 1.47% over a daily basis, simultaneously decreasing 10.33% compared to a week ago. We typically take a contrarian view to crowd sentiment. Since the majority of traders are still net-long, this suggests prices may continue falling. But, recent shifts in positioning point to a more mixed outlook.

Gold Prices Rise Within Ascending Channel, is XAU/USD’s Next Leg Lower?

*IGCS chart used from October 14th report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter