XAU/USD May Climb as Retail Traders Unwind Upside Bets

Gold, Retail Trader Positioning, Technical Analysis – IGCS Update

  • Gold prices continue to stabilize following string of losses
  • Retail traders are continuing to increase downside exposure
  • Is this a sign that XAU/USD may continue higher from here?

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Following a string of losses throughout May until early July, gold prices have been increasingly stabilizing. In response, retail traders have been cautiously reducing upside exposure. This can be seen by looking at IG Client Sentiment (IGCS). IGCS typically functions as a contrarian indicator. As such, are recent changes in exposure hinting that XAU/USD might be readying to push higher from here?

Gold Sentiment Outlook – Bullish

The IGCS gauge shows that about 63% of retail traders are net-long gold. Since the majority are still biased to the upside, this hints that prices may continue lower down the road. However, downside exposure has increased by 18.68% and 16.94% compared to yesterday and last week, respectively. With that in mind, recent changes in exposure hint that prices may reverse higher despite overall positioning.

Gold Sentiment Outlook - Bullish

XAU/USD Daily Chart

On the daily chart, there has been a bullish crossover between the 20-day and 50-day Moving Averages (MA). This has created a Golden Cross that is supporting a near-term upside technical bias. Immediate resistance seems to be the 23.6% Fibonacci retracement level at 1971. Clearing this price exposes the minor 14.6% point at 2013.65.

Extending gains beyond that places the focus on the wide 2048 – 2081 resistance zone, which is composed of highs from April and May. In the event of a turn lower, immediate support appears to be the 1936.90 inflection point. Clearing lower places the focus on the 38.2% level at 1903.46. This price held in late June, reinforcing support.

Confirming a breakout below the latter would open the door to an increasingly bearish outlook towards lows from March around 1804.

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XAU/USD Daily Chart

Chart Created in Trading View

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

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