Gold (XAUUSD) Price Forecast: Rally at Turning Point After Momentum Shows First Signs of Fatigue

Gold Trades Higher But Shows Investor Indecision Inside Monday’s Range

Spot Gold is trading higher on Tuesday, but inside yesterday’s trading range, suggesting investor indecision and impending volatility. The trend is up, but the market could be preparing to take a breather after a strong intraday sell-off on Monday. That price action suggested a wave of profit-taking took place yesterday, but then today’s strong comeback suggests that buyers have already stepped back in.

At 11:54 GMT, XAUUSD is trading $5054.23, up $45.36 or +0.91%.

Subtle Price Action Changes Signal Potential Momentum Shift

Traders should note that with this type of chart pattern when dealing with uncharted territory, one has to pay attention to subtle changes in the price action. At this time, traders are seeing daily higher-highs and higher-lows with closes near the upper end of the range. A break of this pattern could be the first sign of selling pressure. Gold posted that type of move on Monday, so traders are now on alert for a potential shift in momentum.

Key Levels to Watch: $5111.51 Resistance and $4990.21 Support

A trade through $5111.51 will reset the pattern, but a move through yesterday’s low at $4990.21 will reveal more of the puzzle. If this low fails to hold, then $5111.51 will become a minor top and the 50% level at $4824.00 will hit the radar. If the selling pressure persists at that point then the next objective will be the uptrend line at $4703.52.

Six-Session Rally Shows First Signs of Weakening Momentum

Traders have been buying strength or momentum since January 19 when the market gapped $4642.97. Yesterday’s price action was the first sign in six sessions that momentum may be weakening. The inability to take out $5111.51 today will be another sign that momentum may be shifting. Finally, taking out $4990.21 will signal the actual change in momentum.

Momentum Shift vs. Trend Change: Understanding the Difference

Keep in mind that traders are dealing with momentum shifts at this time and not potential changes in trend. The market isn’t in a position to change the trend to down, but it is giving signs of a potential pullback. Since the trend is up, gold is still in “buy the dip” mode. What traders are trying to determine is where that dip may end up if there is a shift in momentum. As of today, that value area has been identified as $4824.00 to $4703.52.

Trading Strategy: Buy Strength or Wait for the Dip?

As this inside move develops, traders are going to be offered the chance to buy strength again through $5111.51 or wait for a pullback to $4824.00 to $4703.52. With the trend up, it becomes a personal preference based on your trading style. This tends to be where emotion begins to take control so it’s best to know ahead of time if you have a Fear of Missing Out (FOMO), or if you are a value trader who believes in the long-term bull market but would rather have better control of your entry and exits.

More Information in our Economic Calendar.