Gold sees further room for upward move

SINCE March 2014, gold has been resisting a move above the 1,400 price point, and has been consistently going sideways within a consolidating range.

From the start of 2019 till June, the price has traversed within a narrow range of US$83; it abruptly broke, climbed 14 per cent within a short span of 2 months, and peaked at US$1,556.93.

Subsequently, the price of gold has retreated from its peak to where it is currently standing at US$1,496.75. Multiple signs are pointing to the possibility that the bullish move has yet to be fully exhausted.

From the daily timeframe, gold may be seen to be in a clear up trend, based on the formation of higher peaks and troughs.

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As with every trend, the occurrences of pullbacks are common, they are identified as a pause in the market that is usually followed by a continuation in the existing direction. In this instance, the bottom of the pullback coincides with the 23.6 Fibonacci level, this supports a move higher.

The Fibonacci retracement is created by taking the highest and lowest point in the chart, and the dividing the vertical distance by the key Fibonacci ratios of 23.6 per cent, 38.2 per cent, 50 per cent, 61.8 per cent and 100 per cent. These levels are considered as key support and resistance.

The daily stochastics oscillator seems to work extremely well in spotting a reversion from the low when the oscillator falls below 20.

The stochastics oscillator is a directional indicator as well as a measure of momentum. A reading above 80 signifies an overbought condition while a reading below 20 represents an oversold condition.

There were two prior instances that gold has rebounded with a specific setup, the first in May then in August this year; gold price was resting on one of the key Fibonacci levels, 100 per cent and 50 per cent respectively, it is also residing at the intersection of the trend line and Fibonacci indicator, and the stochastic demonstrating oversold conditions.

At present, the exact set-up seems to be occurring again, with the price resting on the 23.6 Fibonacci level, while intersecting the trend line, with stochastics exhibiting oversold conditions.

For greater confluence, we look to the MACD indicator. Both the MACD and signal line are holding above the 0 line – this may be interpreted as bullish momentum which also supports a probable move higher up.

With all the factors aligned, we hold a bullish view towards gold in the near term and can expect prices to rise to 1,524.02 (previous swing high).

Subsequently, should the level be broken, it is likely to reach the zero per cent Fibonacci level at 1556.93 and beyond.

  • The writer is a strategist at Phillip Futures.
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