Did you miss the head and shoulders breakdown we were watching on gold prices a few days back?
The precious metal is in the middle of a correction to this area of interest! Take a look at these near-term inflection points I’m watching in the 4-hour time frame:
Check out that sharp neckline breakdown after the U.S. election results came in!
Investors seemed to cash out on their safe-haven holdings while the exit polls indicated a likely victory for U.S. President Trump, as the dollar bulls also charged on expectations of a less dovish Fed.
However, when the FOMC statement came in, it revealed that policymakers intended to stick to their easing bias to ensure that inflation moves close to target so the dollar wound up returning some of its gains.
This allowed XAU/USD to pull up close to the broken neckline support, which might hold as resistance this time.
Is gold about to gain traction on its selloff? Remember that directional biases and volatility conditions in market price are typically driven by fundamentals.
The area of interest coincides with a broken ascending trend line that had been holding since mid-October, as well as the 50% Fibonacci retracement level. A higher correction could reach the 61.8% Fib around $2,734, which could be the line in the sand for a bearish pullback.
Keep in mind that the 100 SMA is still above the 200 SMA to suggest that the path of least resistance is to the upside or that there’s a chance the uptrend could resume.
If any of the Fibs hold, on the other hand, look out for gold bears setting their sights back on the swing low near S3 ($2,645.33) or down to the next potential floor at S4 ($2,605.62).
Conclusion
The recent head-and-shoulders breakdown in gold prices suggests a potential shift in sentiment among investors, who may be responding to both U.S. election results and Federal Reserve policy outlooks.
The pullback near the broken neckline support, which now functions as a resistance, aligns with a broader technical correction following the dollar’s initial rally.
However, the Fed’s easing stance suggests inflation targets remain a priority, which could weaken the dollar in the longer term, potentially buoying gold prices. Market watchers will likely monitor key Fibonacci levels, as further breakdowns could push gold toward lower supports, signaling increased bearish momentum.
Via Baby Pips
