Gold: Is This Pullback Different?Gold's sharp pullback in recent days is raising questions about whether we’re seeing a mere re-entry opportunity within a strong uptrend—or the start of a deeper shift. Let’s take a closer look at the forces behind this drop, and examine the key technical indicators and warning signs that can help us navigate gold’s pullback.
Dollar Strength Drives Gold Lower
The dollar has surged since Donald Trump’s re-election last week, putting immediate pressure on gold prices. As the greenback climbed 0.5% to reach its highest level since early July, non-dollar-denominated assets like gold became less attractive for international buyers. Following Trump’s victory, the dollar has gained further on expectations of renewed tariffs and the possibility that fiscal policy could maintain pressure on inflation, dampening the need for additional Federal Reserve rate cuts. Although traders previously saw an 80% chance of a December rate cut, those odds have dropped to around 65% as the dollar’s strength suggests a different outlook for monetary policy.
These shifts have translated into gold losing over 6% in just nine trading sessions. But for traders, this could represent a strategic pullback within gold’s long-term uptrend, as long as key support levels hold firm. Now, let’s explore the indicators that can help pinpoint where buyers may be most likely to step in.
Three Indicators to Time Gold's Pullback
In technical analysis, pullbacks within a trend can create re-entry points, but the goal is to identify areas with the highest probability of support. When multiple indicators align, they form confluent zones—pockets of strength that often act as significant support or resistance levels. For gold, three indicators stand out on the daily chart: horizontal support levels, Simple Moving Averages (MAs), and Anchored VWAP (Volume Weighted Average Price).
1. Horizontal Support: Horizontal support levels mark price zones where buying interest has previously driven prices higher. Gold’s first test came as it dipped below the 50-day moving average, putting it around the October swing lows. However, this area doesn’t combine well with other support indicators, which lowers the odds of a solid bounce here.
2. Simple Moving Averages: The 50-day and 200-day MAs have played crucial roles in gold’s 2024 uptrend. The 50-day MA has stayed above the 200-day MA since January, confirming bullish momentum. While the recent pullback broke through the 50-day MA, the next level of interest lies around the 200-day MA—a classic longer-term support area.
3. Anchored VWAP: Anchored VWAPs help identify fair value areas by anchoring price to significant events or periods. Currently, two VWAPs are worth watching for gold’s pullback: the first anchored to the consolidation lows of June, which aligns closely with a previous resistance-turned-support level, forming the first confluent zone. The second VWAP, anchored to gold’s yearly low, intersects the 200-day MA—a zone that could provide strong support should prices dip further.
Gold Daily Candle Chart
Past performance is not a reliable indicator of future results
Red Flags to Watch Out For
While these confluent zones offer potential entry points, certain red flags could signal a more significant shift in gold’s trend. The first is accelerating downward momentum. If price action continues to pick up speed on the downside, it could suggest that sellers are overpowering buyers, weakening the likelihood of a sustained bounce.
Another cautionary sign is if previously strong support levels turn into resistance. If gold breaks below a confluent zone, then rallies only to struggle at that former support level, this shift could confirm that bearish momentum is taking hold, raising the risk of a deeper decline.
In summary, while gold’s recent pullback has brought it to potentially key support zones, close attention to these red flags will be essential for traders assessing whether the uptrend can continue. As the market digests new economic data and Fed signals this week, these levels will be critical in determining if this pullback is a buy-the-dip opportunity or the start of a more significant trend change.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
