The bullish trend in gold is about to fade, the metal moved sideways in the lower timeframes. The gold price went up 20% from November's low and has been in a bullish trend for 6 weeks. Moreover, the price of gold reached the targets of several investment houses. All these factors indicate that the asset is overbought.
According to the latest data, ETF purchasers are in no hurry to build up their long positions. That can be interpreted as a lack of additional demand for gold, so the current consolidation or correction may continue in the coming days.
Data from the world's largest exchange fund provided with gold — SPDR Gold Shares, show a continued drop in demand for ETFs. As of Jan. 19, GLD gold reserves were down 5.21 tons. It remains unclear whether the price will follow broader investment demand or whether the number of ETF purchases will increase, reflecting bullish sentiment in the market.
The recent news on gold production in China is also perceived as a bearish factor. An increased supply could override increased demand for the precious metal.
According to Xinhua news agency, China's gold production increased. The China Gold Association (CGA) noted an increase of 13.09%. According to its data, production of the world's largest gold miner and buyer of the yellow metal was 372,048 tons in 2022. Since 2021, production has increased by 43,065 tons.
As for technical analysis, gold has formed a sideways movement on the hourly timeframe. The uptrend from late last year has been broken on the watch. In addition, we see the formation of a head and shoulders pattern. There was an attempt to move higher out of the sidewall at the level of the "head", but it was unsuccessful. Now we are on the border of the "neck", which increases the chances of going down out of the rectangle.
The downside target will be the size of the rectangle and the support line, which was tested on January 17-19, after which the gold price moved higher. Thus, the $1902 level will be the nearest downside target.
A stop loss can be placed when trying to exit the upward sideways movement around $1,940.
The gold price decline:
Take profit – 1,902
Stop-loss – 1 940
This content is for informational purposes only and is not intended to be investing advice.
