Daily Challenge
Today prize pool
I'm in

Gold forecast this week: the yellow metal is overbought, a correction or consolidation is likely

By Rakesh Upadhyay

How can the traders position themselves in this week?

The coronavirus outbreak in China is likely to impact Chinese growth, which is a potential risk to the global economy. The International Monetary Fund has forecast China to grow at 5.6 per cent in 2020, its worst growth rate since 1990.

While initially, the virus was largely located in China, it has recently spread aggressively in Italy, South Korea, Japan, and Iran. The number of cases in South Korea have spiked to 763, prompting the government to raise the infectious disease alert to its highest level.

Traders do not like uncertainty. The coronavirus outbreak has clouded the global growth prospects; hence, the traders are hedging their risk and are buying the yellow metal. With gold hitting fresh seven-year highs, can the uptrend extend further or is it time to book profits?

With the fundamentals of gold looking strong, do the technicals also support buying at these levels? Let us see what the analysis of the weekly chart and the daily chart project for the long-term and this week.

Gold price prediction chart: weekly

Gold is in a strong uptrend. Both moving averages are sloping up and the RSI is in the overbought zone, which suggests that bulls are firmly in command. Last week, gold broke out of a symmetrical triangle, which is a continuation pattern.

The first target to watch on the upside is $1,700 and above it $1,800. We anticipate the bears to defend the $1,700 to $1,800 zone aggressively. This zone is likely to be broken only if there is a flight to safety due to escalation of the coronavirus outbreak or due to some unforeseen black swan event.

If the price turns down from this overhead resistance zone, it is likely to find support at the 20-week EMA. The analysis of the weekly gold chart shows that the trend is up but could soon face stiff resistance. Let us see what the daily chart suggests.

Gold chart: daily

Gold’s daily chart shows that the price picked up momentum after it broke above the symmetrical triangle. This setup had a minimum target objective of $1,663.44. The momentum has easily broken above this mark and is nearing the next target objective of $1,700.

The sharp up move of the past few days has pushed the RSI deep into the overbought territory, which suggests a consolidation or correction in the next few days. On the downside, the first support is at the 20-day EMA, which is at $1,596.

If this support cracks, the correction can extend to the 50-day SMA at $1,566. As the trend is firmly up, the traders can view the dips as a buying opportunity. A break below the 50-day SMA will signal a deeper correction.

Though the daily chart is positive, it is heavily overbought in the short-term. How can the traders position themselves this week?

Gold price this week: How to trade it

Gold is positive both on the weekly and daily chart. However, it is overbought both in the short-term as well as the long-term. Therefore, we suggest traders avoid taking fresh positions at the current levels. It would be better to wait for the price to dip to a critical support level before buying. Alternatively, traders who own positions can book partial profits in the $1,700-$1,800 range and trail the stop loss on the rest of the position.

FURTHER READING: Is gold a good investment? Five ways to buy it – the pros and cons

FURTHER READING: Gold price prediction for January 2020: yellow metal will remain buoyed and may go higher

iPhone Image
Trade the world’s top tokenised stocks, indices, commodities and FX pairs with crypto or fiat
iMac Image
Trade the world’s top tokenised stocks, indices, commodities and FX pairs with crypto or fiat
iMac Image