Gold Technical Analysis: Gold Price Waits For Stimulus

The trading week begins with the bulls dominating the direction of gold, XAU/USD, with gains that reached the $1937 resistance level, the highest for the yellow metal in months.

  • The decline in the price of the US dollar was the strongest factor for the bulls to control the trend.
  • This is in addition to the increasing demand of global central banks to purchase more gold reserves.
  • Gold futures settled higher on Friday as the dollar pared early gains. However, the upside was modest as global stocks rose amid optimism about Chinese economic growth after a senior official said the worst was over in the battle against Covid-19.

US Dollar Index Trading

The  US dollar index rose to 102.55 earlier in the session due to fears of an inevitable economic recession, and fell to 102.05 later in the day, down slightly from the previous close. Speaking on one occasion, New York Federal Reserve Bank President John Williams emphasized that there was "more work to be done" to bring inflation down to the central bank's 2 percent target. He was also quoted as saying that "restoring price stability is essential to achieving maximum employment and price stability in the long term, and it is critical that we continue the course until the job is done."

Markets are now anticipating that the Fed may end the tightening cycle after raising 25 basis points at each of the next two policy meetings.

US Economic Data

The National Association of Realtors released a report showing a continued decline in existing home sales in the US in December, although the decline was much smaller than economists had expected. Accordingly, NAR said existing home sales fell 1.5% to an annualized rate of 4.02 million in December, after falling 7.9% to a revised rate of 4.08 million in November. Economists had expected existing home sales to decline 3.4% to an annualized rate of 3.95 million, compared to the 4.09 million originally reported for the previous month.

Technical analysis of gold prices XAU/USD:

In the near term and according to the performance of the hourly chart, it appears that the XAU/USD gold price is trading within a consolidating triangle formation. This indicates that there is no clear directional bias in market sentiment. Therefore, the bears will target potential bearish breakouts around $1,920 or lower at $1,915 an ounce. On the other hand, the bulls will look to pounce on profits around $1931 or higher at $1937 an ounce.

In the long term, and according to the performance on the daily chart, it appears that the XAU/USD gold price is trading within forming a sharp bullish channel. This indicates a strong long-term bullish bias in market sentiment. Therefore, the bulls will look to extend the current gains towards $1952 or higher to $1979 an ounce. On the other hand, bears will target long-term profits at around $1898 or lower at $1868 an ounce.

(Click on image to enlarge)


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