GOLD : Encountering Resistance

(Fri, 11 Feb 2021). Gold volatility has been elevated in February with the precious metal bouncing between technical levels in quick succession. While losses suffered earlier in the month have largely been reclaimed, XAU/USD remains near the midpoint of the descending channel it has etched out since August. Despite the recent recovery, the yellow metal has encountered resistance overhead and appears vulnerable to a reversal lower.

While the fundamental argument for gold – one that was vital to the metal’s climb from March to August – remains intact, the gradual decline in price is undeniable. As a result, longer-term price trends have since become negative, evidenced by a “death cross” formation on the daily chart in early January 2021 and a break beneath the 200 exponential moving average. As it stands, XAU/USD trades beneath all three of these longer-term averages and there is little to suggest gold will suddenly reverse higher and snap the downtrend.

Resistance is also evident on the 4-hour chart as gold negotiates the $1850 area which has proved influential in the past. The area also coincides with the 200EMA. A potential MACD crossover above the 0 level and beneath the 200EMA might hint gold could reverse lower in the coming days. That said, a bullish continuation is also possible and subsequent resistance might lie at the Fibonacci levels near $1883 and $1920.

Still, gold seems susceptible to a gradual continuation lower. With that in mind, areas of interest in the event of a reversal lower might reside near the $1800 mark and slightly beneath at the 2021 swing low near $1784.

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