|

Gold, Chart of the Week: Supply flooded the market in $1,850's, USD bulls hold the reins

  • Gold is trapped in a wedge formation but tests the extremes of critical support and resistance. 
  • A breakout could be on the cards this week and events will be key. 

North American equity markets staged a comeback on Friday, but there was mixed sentiment all around which supported near the heights of its biggest weekly rise in seven months as markets priced in a year ahead of aggressive hikes in US interest rates.

Nonetheless, US Treasury yields eased, with 10-year yields falling to about 1.77% for the day, well below two-year highs of nearly 1.9% hit at the start of the week which provided some late solace to otherwise battered gold bugs. 

Gold was giving both the bulls and bears a slice of the pie last week with the extremes of both sides to the daily wedge formation being tested, albeit with no cigar for either party:

There was no breakout for the swing traders to capitalise on which makes this week key for price action. Considering the fundamental events that we have lined up in the US calendar and European Central Bank especially, a significant move in gold could be on the cards. The US dollar will be the most likely driver for gold prices this week and have already moved to new cycle highs, the greenback may remain supported as markets flirt with the idea of a 50bp March Fed hike. 

Gold daily chart

This should leave the emphasis on the downside for gold this week. However, considering the trendline support and the daily M-formation, the technicians would argue that a significant correction of the bearish impulse could be in play first of all:

The M-formation is a reversion pattern that has a high completion rate with the price usually moving back to test at least a significant portion of the prior impulse if not all the way back to the neckline of the M-pattern. In the case above, the 38.2% Fibonacci retracement level near $1,810 has a confluence with prior structure as illustrated. 

Should this playout, and if the bears commit near to here, then additional supply could be straw that breaks the camelback for a sizeable continuation to crack the trendline support as follows:

On the other hand, if the US dollar gives way again, then the neckline of the M would be the last defence for a restest of the wedge resistance the $1,850's once again:

Key events

The week ahead is a very busy one in the US, where we see ISM surveys and the January Nonfarm Payrolls.

For the January NFP, consensus sits reasonably low in the 150-250k range, following a weak 199k reading in December. Meanwhile, surveys already released point to declines in both ISM indexes.

An eye will glance over the ECB which is in cruise control, at least for the first half of 2022.

Risk-off flows would be expected to benefit both gold and the greenback pertaining to risks of conflict over Ukraine. 

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to PremiumSign In

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

More from Ross J Burland
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD clings to small gains near 1.1750

Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.

GBP/USD edges higher toward 1.3400 ahead of US data and BoE

GBP/USD reverses its direction and advances toward 1.3400 following a drop to the 1.3350 area earlier in the day. The US Dollar struggles to gather recovery momentum as markets await Tuesday's Nonfarm Payrolls data, while the Pound Sterling holds steady ahead of the BoE policy announcements later in the week.

Gold holds gains above $4,300 on prospect of further Fed rate cuts

Gold price extends its upside to around $4,305, the highest since October 21, during the early Asian trading hours on Tuesday. The precious metal edges higher on further US Federal Reserve cut bets. The US Nonfarm Payrolls report will take center stage later on Tuesday. Also, the US Retail Sales and Purchasing Managers Index will be published. 

Ethereum: BitMine acquires 102,259 ETH as price plunges 5%

Ethereum treasury company BitMine Immersion scaled up its digital asset stash last week after acquiring 102,259 ETH since its last update. The purchase has increased the company's holdings to 3.96 million ETH, worth about $11.82 billion. BitMine aims to accumulate 5% of ETH's circulating supply.

NFP preview: Complex data release will determine if Fed was right to cut rates

The long wait is over, and the Bureau of Labor Statistics in the US will release nonfarm payrolls reports for both November and October at 1330 GMT on Tuesday. The overall NFP figure for October is expected to be -10k, however, it is expected to be influenced by a massive 130k drop in federal department workers. 

Solana Price Forecast: SOL consolidates as spot ETF inflows near $1 billion signal institutional dip-buying

Solana (SOL) price hovers above $131 at the time of writing on Monday, nearing the upper boundary of a falling wedge pattern, awaiting a decisive breakout.