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Gold Technical Forecast: XAU/USD May Rise as 200-MA Holds Firm

Gold Technical Forecast: XAU/USD May Rise as 200-MA Holds Firm

Daniel Moss, Analyst

Gold Price Technical Forecast: Bullish

  • The formation of a 10-year Cup and Handle pattern suggests that the long-term outlook for gold prices remains skewed to the topside.
  • A rebound back towards the monthly high could be in the offing if support at the sentiment-defining 200-MA successfully stifles selling pressure.
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Anti-fiat gold prices have come under significant pressure to kick-off 2021, sliding over 4% lower from the yearly open as fiscal stimulus hopes sent bond yields storming higher. However, bullish long-term technical patterns suggest that bullion may climb higher in the coming weeks.

Gold Price Weekly Chart – Cup and Handle Pattern in Play

Gold prices weekly chart created using Tradingview

The weekly timeframe highlights the formation of a bullish Cup and Handle pattern that has been carved out over the past decade. This implies that an impulsive topside move could be on the cards.

Moreover, the reaction of price at the trend-defining 50-week moving average in early December 2020 is strikingly similar to the reactions seen in March 2020 and April 2019, which ultimately generated a 34.5% and 43% surge higher respectively.

With that in mind, further gains appear in the offing if gold prices remain constructively perched above the 34-week exponential moving average (1836). A weekly close back above 1850 would probably inspire a retest of handle resistance and the psychologically imposing 1900 mark.

Hurdling that is required to validate the bullish continuation pattern and pave the way for buyers to retest the record high (2075) set in August of last year. Alternatively, a weekly close below 1836 could neutralize near-term buying pressure and generate a retest of range support at 1780 – 1800.

Gold Price Daily Chart – 200-MA May Foster Near-Term Recovery

Gold prices daily chart created using Tradingview

Zooming into the daily chart bolsters the bullish outlook depicted on the weekly timeframe, as prices continue to respect the uptrend extending from the March 2020 nadir and hold firmly above confluent support at the 61.8% Fibonacci (1839) and sentiment-defining 200-MA.

Gaining a firm foothold above the January 13 high (1863) on a daily close basis would probably open the door for buyers to probe Descending Channel resistance and the 100-MA (1888). A convincing break above that may generate an impulsive topside push back towards the monthly high (1959).

On the other hand, slicing through the 200-MA (1842) could ignite a more extended pullback towards range support at 1820-1825, with a break below likely bringing the 50% Fibonacci (1763) into the crosshairs.

The IG Client Sentiment Report shows 84.01% of traders are net-long with the ratio of traders long to short at 5.26 to 1. The number of traders net-long is 2.49% higher than yesterday and 10.72% higher from last week, while the number of traders net-short is 1.83% lower than yesterday and 0.28% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Gold-bearish contrarian trading bias.

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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