- US dollar softness and rate repricing support gold, but volatility keeps upside extension uncertain.
- Gold holds key technical levels near $5,000 as breakout or rejection risk grows.
- US jobs and CPI data this week will decide whether Friday’s rally can extend.
We saw a big risk rally in the markets on Friday, with crypto, indices, and all rallying, while the dropped as investors shifted out of defensive positioning. While the recovery was impressive, the key question now is: can these markets extend their gains? In the first half of Monday’s trade, we had a bit of a mixed session where the US dollar continued to fall, while US index futures gave up their earlier gains.
Gold and retained most of their earlier advances, holding around key technical levels. With China apparently telling banks to curb exposure to US Treasurys, this could only mean more room for gold in their reserves. Meanwhile, traders will be looking ahead to key US on Wednesday and on Friday.
What to Watch Out for This Week
Last week, the US dollar was mostly bid mainly due to the risk-off tone that had hurt stocks, cryptos, and metals for much of the week, before dip buyers emerged on Friday, which also allowed the US dollar to show a delayed reaction to some softer labour market data released earlier in the week. The re-pricing of lower US took the sting out of the defensive rally in the US dollar at the end of last week.
This could leave the US dollar vulnerable in the upcoming US jobs data on Wednesday. As a result, this should provide a supportive macro backdrop for gold and silver. But heightened volatility in recent weeks means nothing should be taken for granted, as it could be that we have already seen the top for precious metals.
Many traders who chased the prior rally and got stuck might be looking to exit their positions near breakeven. It is therefore a trading market, rather than a trending one, and I would prefer to take things from one level to the next. But that positive close on Friday means the near-term directional bias is tilted to the upside for gold.
Gold Technical Analysis
Following gold’s big breakdown a couple of weeks ago, I was looking for another drop last week as the price of gold was rising inside a rising wedge pattern, visible on the intraday charts. As it happened, price did break out of that pattern and went lower quite sharply. But it then recovered nicely and broke a couple of levels on the upside, tilting the technical bias back to bullish in the near-term. It has also taken out a short-term bearish trend line, as you can see on the hourly chart.
Gold was now trading around the $5K hurdle again at the time of writing. It was potentially gearing up for a bullish breakout above the next band of resistance seen between $5,045 to $5,100. This zone is where it had previously found support on a couple of occasions before breaking lower. We saw gold already in this area of resistance a few days ago, where it sold off from, which led to another breakdown that ultimately failed to make a new lower low.
So, we are back at that area once again. Let’s see what happens here. If it were to reclaim this area, I think that would be obviously bullish, in which case we could see an extension of the rally all the way to the levels highlighted on the chart, at around $5,290, or even $5,390, marking the previous breakdown areas. So those are the key targets to watch on the upside in the event of a breakout.
But it’s important that reclaimed support levels hold now, because if they don’t and we see a breakdown below them, this could well trigger renewed selling in the market. A couple of those levels are at $4,950, followed by $4900, formerly resistance. Additional support is at $4800, where a trend line is also coming into play.
But should we go decisively below that, I think things could get spicy once again, and we could see further follow-up technical selling as a result. Below $4,800, you have nothing significant until $4,600 or $4,500.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
