Gold Price Analysis: XAU/USD bears waiting to pounce

Gold Price Analysis: XAU/USD bears waiting to pounce

  • Gold meets a critical resistance area for a compelling case to the downside. 
  • A significant pullback could now be on the cards to correct recent rally. 

The price of gold has shot higher and meets the bearish commitments at a critical juncture in the precious metal’s journey.

From a longer-term perspective, the bullish trend is well soiled, however, a significant pullback could now be on the cards to correct the highly overextended W-formation’s impulse.

The following is a top-down analysis which illustrates the compelling market structure and where the next trading opportunity could arise to the downside.

Weekly chart

XAU USD%20 %202021 01 05T141326.449 637454745282921748

The price is meeting a strong level of resistance which prevented the mid-winter come back and the area would be expected to hold initial tests.

Daily chart

XAU USD%20 %202021 01 05T141419.749 637454746628774815

From a daily perspective, the W-formation is highly overextended and is due for a correction.

XAU USD%20 %202021 01 05T141505.939 637454747383009721

A correction would be expected to at least complete a 38.2% Fibonacci retracement, although the support structure is much lower down meeting a 61.8% Fibo level.

4-hour chart

XAU USD%20 %202021 01 05T143350.440 637454756605653078

With the price still above the current support structure reinforced by the 10 moving average on the 4-hour chart, there is minimal risk to reward opportunities at this juncture.

However, a break of the support would be compelling for a downside move to correct the over extended W-formation’s impulse.

Credit: FX Street

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