Gold Technical: At the risk of a minor pull-back before potential new upleg

<p><a href="https://api.addthis.com/oexchange/0.8/forward/facebook/offer?url=https%3A%2F%2Fwww.marketpulse.com%2Fcommodities%2Fgold-technical-at-the-risk-of-a-minor-pull-back-before-potential-new-upleg%2Fkwong&amp;pubid=ra-525512e4690e068c&amp;title=Marketpulse%20%7C%20Home&amp;ct=1" target="_blank"><img src="https://cache.addthiscdn.com/icons/v3/thumbs/32×32/facebook.png" border="0" alt="Facebook" /></a><a href="https://api.addthis.com/oexchange/0.8/forward/twitter/offer?url=https%3A%2F%2Fwww.marketpulse.com%2Fcommodities%2Fgold-technical-at-the-risk-of-a-minor-pull-back-before-potential-new-upleg%2Fkwong&amp;pubid=ra-525512e4690e068c&amp;title=Marketpulse%20%7C%20Home&amp;ct=1" target="_blank"><img src="https://cache.addthiscdn.com/icons/v3/thumbs/32×32/twitter.png" border="0" alt="Twitter" /></a><a href="https://api.addthis.com/oexchange/0.8/forward/email/offer?url=https%3A%2F%2Fwww.marketpulse.com%2Fcommodities%2Fgold-technical-at-the-risk-of-a-minor-pull-back-before-potential-new-upleg%2Fkwong&amp;pubid=ra-525512e4690e068c&amp;title=Marketpulse%20%7C%20Home&amp;ct=1" target="_blank"><img src="https://cache.addthiscdn.com/icons/v3/thumbs/32×32/email.png" border="0" alt="Email" /></a></p><ul>
<li><strong>The recent three weeks of rally seen in spot Gold (XAU/USD) has been driven by geopolitical risk premium and positive momentum.</strong></li>
<li><strong>The rise in the price actions of spot Gold has ignored the increase in the long-term opportunity cost of holding gold as the US 10-year Treasury yield rallied in tandem.</strong></li>
<li><strong>Heightened stagflation risk is likely the cause of the ignorance of higher holding costs in Gold.</strong></li>
<li><strong>The current short-term uptrend phase of spot Gold (XAU/USD) has reached an “overstretched condition” which increases the risk of a corrective retracement, watch the US$2,006 key short-term resistance. </strong></li>
</ul>
<p>This is a follow-up analysis of our prior report, <em>“Gold Technical: A consolidation in the 10-year US Treasury yield may offer a relief bounce” </em>published on 6 October 2023. Click <a href="https://marketpulse.com/commodities/gold-technical-a-consolidation-in-the-10-year-us-treasury-yield-may-offer-a-relief-bounce/kwong">here</a> for a recap.</p>
<p>The price actions of <a href="https://www.oanda.com/sg-en/trading/instruments/">spot Gold</a> (XAU/USD) have risen by +10.3% right at the highlighted US$1,810 key support in the past three weeks and printed an intraday high of US$1,997 last Friday, 20 October 2023.</p>
<h2><strong>A medium-term uptrend phase may have kickstarted in Gold</strong></h2>
<p><a href="https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-04-32.png"><img loading="lazy" class="alignnone wp-image-808251 size-large" src="https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-04-32-1024×589.png" alt="" width="700" height="403" srcset="https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-04-32-1024×589.png 1024w, https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-04-32-300×173.png 300w, https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-04-32-768×442.png 768w, https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-04-32.png 1514w" sizes="(max-width: 700px) 100vw, 700px" /></a></p>
<p>Fig 1: Spot Gold (XAU/USD) medium-term & major trends as of 23 Oct 2023 (Source: TradingView, click to enlarge chart)</p>
<p>One of the bullish primary drivers has been momentum where spot Gold (XAU/USD) surpassed two key technical milestones; the upper boundary of a medium-term descending channel that capped prior rallies since 4 May 2023 and the key 200-day moving average. The occurrences of these key resistance breakout episodes are likely to have led to a psychological positive feedback loop as well as short-covering activities because large non-commercial (speculators) net long positions in the Gold futures market had declined to 161,861 contracts for the week of 9 October 2023, a year-to-date low based on the Commitments of Traders report.</p>
<p>The other driver is the rising geopolitical risk premium due to the risk of a prolonged Israel-Hamas conflict as well as stagflation risk triggered by potential higher oil prices due to its spill-over impact to the wider Middle East region where supply disruption in oil may be weaponized for strategic reasons by key stakeholders such as Iran.</p>
<p>Interestingly, the heightened risk of stagflation seen in the last three weeks has overshadowed the increase in the opportunity cost of holding gold as the US 10-year Treasury yield also rallied in unison and hit an intraday high of 5% last Thursday 19 October, its highest level since July 2007 before the onset of the Great Financial Crisis.</p>
<h2><strong>A minor corrective retracement/pull-back looms for Gold</strong></h2>
<p><a href="https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-05-33.png"><img loading="lazy" class="alignnone wp-image-808252 size-large" src="https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-05-33-1024×589.png" alt="" width="700" height="403" srcset="https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-05-33-1024×589.png 1024w, https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-05-33-300×173.png 300w, https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-05-33-768×442.png 768w, https://www.marketpulse.com/wp-content/uploads/2023/10/XAUUSD_2023-10-23_13-05-33.png 1514w" sizes="(max-width: 700px) 100vw, 700px" /></a></p>
<p>Fig 2: Spot Gold (XAU/USD) minor short-term trend as of 23 Oct 2023 (Source: TradingView, click to enlarge chart)</p>
<p>Right now, technically speaking, the short-term uptrend phase of Gold (XAU/USD) in place since the 6 October 2023 low of US$1,810 has reached an “overstretched condition” after it scaled to a five-month high seen last Friday, 20 October.</p>
<p>Price actions of Gold (XAU/USD) have reacted negatively at the upper boundary of the short-term ascending channel that is right below a key short-term pivotal resistance of US$2,006 (the former congestion area of 5 May/12 May 2023 and a Fibonacci extension projection cluster) coupled with a bearish divergence condition seen in the hourly RSI momentum indicator at its overbought region (above 70 level) on last Friday.</p>
<p>These observations suggest the bullish momentum of the short-term uptrend phase in Gold (XAU/USD) has abated and the next potential movement may be a corrective retracement before a new potential impulsive up move sequence unfolds due to the clearance of the key 200-day moving average and the former medium-term descending channel resistance at around US$1,900.</p>
<p>A break below the near-term support of US$1,947 reinforces the retracement scenario towards the immediate support zone of US$1,932/1,920 (200-day moving average and the 38.2% Fibonacci retracement of the recent rally from 6 October 2023 low to 20 October 2023 high).</p>
<p>On the flip side, a clearance above US$2,006 negates the short-term bearish tone for a continuation of the bullish impulsive up move sequence towards the next intermediate resistance at US$2,028/2,037 (11 May 2023 minor swing high and a Fibonacci extension projection) in the first step.</p>