Gold forecast this week: yellow metal looks strong in the long-term but a dip in the near-term is likely
With the fundamentals of gold looking strong, do the technicals also support buying at these levels?
Gold has risen about 18 per cent in 2019, which is its best performance since 2010 when it had risen close to 30 per cent. Though the S&P 500 has risen about 29 per cent this year, it has not stopped investors from buying gold. This shows that the investors are skeptical about the trade deal between the US and China, upcoming US Presidential elections, stagnant growth in Europe and Japan and geopolitical tensions in Latin America and Hong Kong. Therefore, investors are hedging their risk by buying gold.
It is not only the investors who have been buying gold. The central banks are on track to buy about 656 tons in 2019, roughly the same amount of gold they had purchased in 2018, which was the highest since 1967. This shows that some of the central banks are moving away from the US dollar and are adding gold to balance the risk.
With the fundamentals of gold looking strong, do the technicals also support buying at these levels? Let’s look at the analysis of gold forecasts for the long-term and next week.
Gold price prediction chart: weekly
Gold formed a large basing pattern between $1,050 to $1,375 for about six years. Thereafter, the bulls broke out of the range in mid-June of this year. A breakout of such a large range is a bullish sign as it signals an increase in demand. The minimum target objective is a rally to $1,700.
Last week, the bulls broke above the bullish flag pattern that had formed for the past few weeks. This is a positive sign as it indicates a resumption of the up move. Both moving averages are sloping up and the RSI is in the positive territory, which indicates that bulls are in command.
The bears will attempt to defend the zone between $1,550 to $1,600. If successful, gold might remain range-bound for a few weeks. However, if the bulls scale above this zone, a move to $1,700 and above it to $1,800 is possible where we anticipate a stiff resistance.
While the analysis of the weekly gold chart shows promise, let’s see if we spot any buying opportunities on the daily chart.
Gold chart: daily
Gold’s daily chart also paints a bullish picture. The moving averages have completed a bullish crossover, which indicates that the bulls have the upper hand. However, the sharp rally of the past few days has pushed the RSI into the overbought zone, which points to a minor consolidation or correction in the next few days.
On the upside, we anticipate the bears to defend the immediate resistance at $1,520. If successful, gold might consolidate between $1,520 and $1,450 for a few more days. Nonetheless, if the bulls scale above $1,520, a move to $1,557 will be on the cards.
Our bullish view will be invalidated if the price reverses direction from the current levels and plummets below $1,440. However, we give it a low probability of occurring.
Gold price this week: how to trade it
Though bullish, we do not find a reliable trade setup that offers a good risk to reward ratio because the logical stop loss is way lower at $1,475. Therefore, we suggest traders wait for a minor dip to the 20-day EMA or a minor consolidation close to $1,520 to form as it would offer a good stop loss point.
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