Last Friday, gold started to form a bearish pattern descending triangle on the hourly timeframe. By today, the formation of this pattern has been completed. The base of this triangle lies in the interval of 2410.0–2415.0. The price target after breaking through this base is the round level of 2400.0.
If one looks at the daily and weekly chart of gold, one can see that it is in a fairly strong technical overbought zone. Many oscillators on the weekly interval show their values near the upper boundary of the range, which indicates a possible downward price reversal to remove this excessive price overhang.
From the fundamental point of view, the rationale for such downward movement is the reduction of geopolitical risks associated with the situation in the Middle East, as well as the strengthening of the US dollar. The latter factor is conditioned by uncertainty about prospects of monetary policy easing in the U.S. and weakening expectations about the number of interest rate cuts.
In a week, summer will begin in the northern hemisphere, which is traditionally considered a calm period for financial markets. Reasons for high volatility at this time appear very rarely. Assets, which act as safe havens from market risk, are inclined either to calm smooth declines or to measured fluctuations in small ranges.
The scenario in which gold will become sharply stronger again will be another round of tensions in the Middle East, as well as surprises related to surges in inflation values in the monthly U.S. consumer inflation reports. If the Fed delays its policy easing actions, it will lead to strengthening of the U.S. dollar in the XAUUSD pair, and accordingly weakening of gold price.
The final recommendation is to sell gold.
Profit should be taken at the level of 2400.0. A stop-loss could be set at the level of 2450.0.
The value of possible loss should not exceed 2% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
