Gold Price Analysis: RSI divergence indicates we could get a pullback

• Gold has had a great run of late but there are some indications there could be a short term pullback.
• The RSI indicator is making lower highs while the price made some higher high waves.

Gold fundamental backdrop

It has been a strange session in the markets. Most of the USD pairs are reversing their recent gains. EUR/USD and GBP/USD have both moved lower and this recent greenback strength had led to some weakness in gold. 

US stock markets are also lower today after a soft Asian and EU session. The recent positive risk sentiment has reversed despite reports of a slowdown in hospital admissions in the US. There have been reports of a second wave of COVID-19 patients in Singapore which could have spooked investors. 

Italy has just reported the lowest amount of coronavirus case infections in the last 4.5 weeks. Some states in Italy have even opened shops like Denmark and Austria. Germany plans to reopen schools by 4th May but Germany are seen to be a good case when it comes to the control of the spread of the disease. 

In terms of data on Wednesday, US retail sales for the month of March fell -8.7% vs expectations of -8.0%.  The US also had its latest industrial production print for March which also came in worse than consensus estimates of -4.0 at -5.4%. Some analysts noted that it may take longer than expected to return back to normal levels. There are still lots of key earnings announcements to keep an eye on over the coming weeks with most companies so far saying they will stagger the opening of their branches and stores. 

Technical picture

The daily gold chart is still making higher high waves but today (Wednesday) there has been a small pullback. It seems to be US dollar driven rather than risk as stock have also sold off throughout the session. As you can see from the chart there is a big RSI indicator divergence. This is when the price makes higher highs but the indicator makes lower highs. In this instance it is marked but the red trendline on the chart and on the indicator. This is usually a sign that the momentum in the move might be slowing. It doesn't mean the trend is over but there could be a short term pullback. 

On the chart, I have drawn areas where the price might find support. In the very near term USD 1700 could be a support zone. Beyond that, USD 1650, 1600 and 1550. It seems all the support zones are converging at round numbers. 

Additional levels