Gold Price Forecast: Risks a correction after the relentless rally to nine-year highs
- Gold bulls could face exhaustion after the 4-day surge.
- Economic rebound hopes on stimulus to keep dollar pressured.
- Rising wedge hurdle and overbought RSI on daily chart signal caution.
Gold (XAU/USD) built on the recent upsurge and refreshed nine-year highs at $1866.90 earlier in the Asian session. The bright metal rose about 1.30% on Tuesday on the back of the relentless sell-off in the US dollar across the board, fuelled by the expectation of a quicker economic turnaround while investors cheered the EU fiscal deal and additional US stimulus talks. Gold also drew support from escalating US-China row after US Secretary of State Mike Pompeo said they want to build a global coalition to counter China, accusing Beijing of exploiting the outbreak to feed its own motives.
Gold, further, tracked the rally in Silver, which recorded fresh seven-year highs just shy of the 23 level. In the day ahead, the precious metal could see a brief consolidative phase, as the bulls take a breather after the fourth straight day of gains. Moreover, any disappointment in the US housing data and worrisome COVID-19 stats could weigh on the broader market sentiment and propel a dollar comeback. In such a case, gold could risk a correction before it resumes its uptrend towards the record high of $1920.
Short-term technical outlook
Gold: Daily chart
The daily chart of gold signals caution, as the price nears the four-month-long rising wedge resistance at $1869. Meanwhile, the daily Relative Strength Index (RSI) has entered the overbought territory for the first time since end-February, which could ring an alarm to the buyers.
Therefore, the bright metal risks a corrective move lower from a technical perspective while investors may resort to profit-taking after the robust rise.
The price could reverse towards last week’s strong resistance zone around $1818-20 level in the near-term should it fail to resist above the intraday low of $1840.66.
The next support awaits at $1803.87, which is the critical rising wedge support. A break below the latter will validate the formation and call for a reversal in the ongoing bullish trend.
The upward-sloping 21-daily Simple Moving Average (DMA) at $1795.69 will be the last resort for the bulls.
However, if the gold buyers defy the warnings then $1880 could be put to test following a break above the rising wedge hurdle.
Gold: Additional levels to consider
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
