Gold is currently trading at EUR 1,172, having clocked a high of EUR 1,186 earlier this week - a level last seen in April 2017.
The yellow metal is set to end the week with 0.25 percent gains - it's sixth consecutive weekly gain. That is the longest weekly winning streak since July 2016.
Further, XAU/EUR has gained more than 15 percent in the last five months and seems to have found acceptance above the trendline connecting the July 2016 and April 2017 highs.
More importantly, the rally could continue, as the declining business morale could soon push Germany into recession.
German business confidence declined for a sixth month running in February, an Ifo’s monthly survey showed earlier today. Further, the government-owned development bank KfW halved its economic forecast for 2019.
Recently, the German government revised lower its 2019 GDP forecast to 1 percent from 1.8 percent projected last week. Earlier this month, the European Commission cut its Eurozone growth forecast for 2019 to 1.3 percent.
What's more, the Eurozone purchasing managers' indices (PMI) released this week suggested that the economy will grow by only 0.1% in the first quarter.
While the forward-looking indicators are signaling further deterioration for the Eurozone, these sentiment figures are not yet penciling in the threat of US-China trade war escalation.
Things could get worse for Germany and Eurozone if the US and China fail to reach a deal before March. 1. Trump has threatened to double the rate of duties on $200 billion worth of Chinese imports if the breakthrough trade deal remains elusive.
That could tip Germany into recession, forcing markets to price in an EBC rate cut.
Put simply, the path of least resistance for the XAU / EUR is on the higher side. The next leg higher, however, could be preceded by consolidation or a price pullback, as technical charts are signaling bullish exhaustion.
Weekly chart
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The long upper shadow attached to the weekly candle likely indicates the bulls have run out of steam.
The weekly RSI is at the highest level since 2015, meaning the market is at its most overbought in four years. That, however, does not imply bullish-to-bearish trend change, but merely confirms the strength of the bull market and could be considered a sign of impending bull breather.
Daily chart
XAU/EUR fell 1.8 percent yesterday, confirming the short-term bullish-to-bearish trend change signaled by the previous bearish inverted hammer. As a result, the metal could fall back to $1,160 next week.
The support at EUR 1,144 (Feb. 4 low) could come into play if the 14-day RSI drops below the support at 57.47.
The 50-day MA, currently at EUR 1,136, could be breached if the Sino-US trade war ends. That would bode well for Germany and risk assets.
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