- Gold set to extend the bounce, eyes critical $1860 barrier.
- US stimulus hopes, fresh China-HK news underpin gold.
- Hourly chart points to a potential pennant breakout.
- Eyes on stimulus, covid updates alongside T-yields price action.
Gold (XAU/USD) staged an impressive bounce from six-week lows of $1817 on Monday, as the US dollar came off the highs after stocks tumbled and drove the Treasury yields lower Renewed coronavirus concerns weighed on the market mood and prompted a retreat in the US yields. Further, markets weighed in the prospects of a multi-trillion-dollar stimulus package due from President-elect Joe Biden this Thursday, which implies higher inflation, benefiting gold as a hedge against inflation. The metal settled Monday around $1845, losing marginally on the day.
Heading into Tuesday, gold has snapped the four-day losing streak, posting small gains to trade once again above $1850, as of writing. A pause in the US dollar rally combined with US stimulus expectations bodes well for the XAU bulls. Dismal market mood, amid mounting covid fears and fresh China-Hong Kong tussle, also favors the upside in the safe-haven gold. The latest Reuters report cited that China is planning a further Hong Kong crackdown after more than 50 democrats in HK were arrested last week.
In absence of relevant economic news, the broader market sentiment and Treasury yields price action could influence the flows in yieldless gold.
Gold Price Chart - Technical outlook
Gold: Hourly chart
The hourly chart shows that gold has broken through the pennant resistance at $1851.48, although a closing on the stick is required to validate the pattern breakout.
The bulls are probing the bearish 50-hourly moving average (HMA) at $1858, with the Relative Strength Index (RSI) having recaptured the midline, currently looking north at 58.07.
The next relevant upside barrier awaits at $1890, the downward-sloping 100-HMA.
If the bulls face rejection at 50-HMA, a pullback towards the pattern resistance now support around $1852 cannot be ruled out. Further south, the horizontal 21-HMA at $1847 could offer some support, below which the pattern support at $1842 would come into play.
Meanwhile, Monday’s low of $1817 will be the level to beat for the bears.
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