Gold’s November Head-Fake Puts Pressure on Longer Term Outlook

The blue vertical is the beginning of November. The precious metal started the month poorly. By the 3rd of November, gold was down about 1.3% (month open to low). However, it charted a reference trough, and almost 48 hours later, it charted the required reference peak.

With these two points as an anchor, the precious metal charted a series of higher troughs followed by higher peaks - gold was trending up for the month. The uptrend also had underlying momentum. The slow stochastic spent a considerable amount of time in its upper quartile (blue rectangle), from the 4th- to the 16th-November.

From the month low to high, gold appreciated close to 6.7%. However, the 16th November is the zenith for the month, marked by HP* and the dashed red vertical. The precious metal then sells down and charts a lower trough (LT*), which effectively ended its uptrend. However, it is not until 18 November that weakness begins to emerge, and gold charts a lower peak. A downtrend commences on the 19th when a lower trough is charted, following its previous lower peak. This is followed by another lower peak (LP2) and another lower trough (LT3).

The stochastic has also fallen into the lower quartile (red rectangle). This suggests capitulation. The longer the stochastic remains in this area, the greater the likelihood for further price declines. Moreover, with only a week left in November; the monthly chart may be a cause of concern after gold's exhaustion.

The XAUUSD monthly charted a lower peak followed by a lower trough. Further weakness was evident when another lower peak (LP2) was charted. However, the precious metal found support and the next leg down did not trend lower. The higher trough (HT) suggested support - but this is now be questioned. Gold's November head-fake has effectively charted the next lower peak (LP3). If the price drops below the red horizontal, gold will be in a downtrend.

Of note, it is Fed Chair Powell's nomination for a second term that has pressured XAUUSD. Hedged gold positions, opened to take advantage of a potential dovish Brainard nomination, are now being unwound. Thus, the support for gold may be diminishing fast on the longer-term chart. The implication here is that the precious metal runs the risk of further declines, as the Fed progresses with its tightening policies. If so, higher yields will impose an opportunity cost for holding gold. This is likley to push gold lower if it is abandoned in favour of less "costly" assets.