Gold has been facing a significant challenge at the $2525 per ounce mark on the spot market, struggling to break through this glass ceiling for the past couple of weeks. However, a pattern of smaller pullbacks and more frequent rallies towards this resistance level indicates the existence of impressive buying pressure in the market. This suggests that a breakout to historical highs may be imminent, although the behavior of the price post-breakout will be crucial to monitor.
A triangle pattern consisting of horizontal resistance and rising support has emerged on the gold chart over the past two weeks. This formation signifies that buyers are becoming more assertive at progressively higher price levels. A similar trend can be observed when looking at the longer-term chart period since April, where corrections have been shallower over time. The current consolidation phase can be seen as a fluctuation around the upper boundary of the uptrend established since April.
On the daily timeframe, there is a noticeable divergence between the Relative Strength Index (RSI) and the price trend, indicating potential upward exhaustion. However, a similar scenario occurred from October 2023 to February 2024, leading to a strong uptrend rather than a short-lived rally. It is important to consider historical patterns and trends in addition to current indicators.
One of the primary factors influencing the gold price in recent months has been the weakening of the US dollar by nearly 5% against a basket of major currencies. This depreciation of the dollar has largely contributed to the 8.5% increase in the price of gold per ounce. Nevertheless, it is worth noting that the Dollar Index (DXY) is showing signs of a potential reversal in direction as it approaches the lower end of its trading range in early 2023. These signals collectively suggest a potential breakout of resistance levels in the near term, followed by a further surge towards historical highs.
Looking beyond technical analysis and market trends, the short-term trajectory of gold will also be impacted by the Federal Reserve’s monetary policy decisions. The extent to which interest rates are cut before the end of the year will play a crucial role in shaping the direction of the gold price. It is important for investors to stay informed about both technical factors and fundamental drivers that could influence the precious metal’s price in the coming weeks.
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