Gold Price Forecast: XAU/USD prepping up for a big break higher, technicals suggest

Gold awaits a strong catalyst for the next push higher.
Hourly chart appears constructive, recapturing $1850 critical.
Reflation trade to play out ahead of the US CPI, Powell’s speech.

Dhwani Mehta FXStreet

Expectations of a $1.9 trillion stimulus package likely to be passed in the US Congress keep the reflation trades alive and kicking, fuelling gold’s (XAU/USD) rally towards the critical $1850 level. Broad-based US dollar weakness amid record rallies in the US stock indices also adds to the strength in the bright metal.

Gold prices could likely benefit if the Treasury yields resume the recent declines amid uncertainty over the strength of the US economic recovery. The US CPI data and the Fed Chairman Jerome Powell’s take on the economy will be critical to the next direction in the metal.

Gold Price Chart - Technical outlook

Gold: Hourly chart

Technically, gold looks ready for a big upside break, as the inverse head-and-shoulders formation in the making on the hourly sticks.

Also, an impending golden cross points to additional upside in the XAU/USD pair. A golden cross is confirmed when the 50-simple moving average (SMA) cuts the 200-SMA from below.

The potential inverse head-and-shoulders neckline at $1850 needs to be scaled on a sustained basis for the big technical breakout, which would expose the February highs near the $1863 region.

The next stop for the bulls is seen at $1875, the January 29 high. The relative strength index (RSI) inches higher above the midline, backing the case for the further upside.

Alternatively, the 21-SMA at $1840 offers immediate support, below which the confluence of the 50 and 200-HMAs at $1834 could be tested. The horizontal 100-SMA at $1820 could provide strong support to the XAU bulls.

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.

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