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Reclaiming Position North of $2,000 Brewing on XAU/USD

By:
Aaron Hill
Published: Mar 23, 2023, 19:35 GMT+00:00

Gold prices on the verge of taking out $2,000 to the upside, a move likely to encourage breakout buying.

Gold, FX Empire

In this article:

It is no secret that the price of gold and US government bonds are correlated. Among other factors, this is due to their safe-haven appeal (according to the 60-day rolling correlation coefficient, the correlation is nearly +0.90). Consequently, gold prices are also inversely correlated with US yields and the US dollar.

With US Treasury yields facing southbound—the 10-year US Treasury yield elbowed beneath its 50-day simple moving average and is currently attempting to find grip beneath the 200-day simple moving average at 3.502%—as well as the US dollar navigating deeper waters, the XAU/USD is on the verge of closing beyond the widely watched $2,000 barrier.

Weekly Resistance from $1,988 Is Key

Based on the weekly timeframe, the technical landscape focuses on resistance at $1,988 in a market clearly trending higher. A moderate push north of the aforementioned barrier has been seen this week, though lacks conviction. For XAU/USD to continue climbing when the chart’s Relative Strength Index (RSI) is on the doorstep of overbought space (70.00), a decisive close above the current resistance is necessary.

Upside objectives beyond $1,988 are familiar ‘double-top’ resistance at $2,070, and a break here would call attention to the 100% projection at $2,152 that is closely shadowed by a 1.618% Fibonacci expansion at $2,176.

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Daily Timeframe: Buyers in Control

Against the backdrop of the weekly timeframe, resistance-turned-support at $1,949 put in an appearance on the daily timeframe on Wednesday. In addition to the weekly scale, trend direction favours buyers on the daily, displayed not only through the 50-day simple moving average ($1,886) crossing above the 200-day simple moving average ($1,780), which is referred to as a ‘Golden Cross’, but also through price structure: a series of higher highs and lows since bottoming in late 2022 in the shape of a triple-bottom pattern.

What’s technically interesting here is that the $1,998 18 April top has already been tested and failed to generate much selling, meaning it failed to produce sufficient bearish interest to clear $1,949 support. As such, buyers are likely to overthrow $1,998 should price remain bullish north of $1,949.

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Dip Buying Scenario on the H1?

Shorter-term price action on the H1 chart unmasks two nearby support levels at $1,974 and $1,983; overhead, focus is on the $2,000 barrier. Knowing that $1,998 resistance on the daily scale is perhaps fragile, and the weekly timeframe working its way above resistance coming in from $1,988, a dip-buying scenario may unfold should the yellow metal pencil in a correction from current price and retest resistance-turned-support at $1,983. Alternatively, failure to retest $1,983 could see a H1 close above $2,000 take shape and ignite breakout buying interest to take things to at least the $2,009 20 March high (black arrow).

Therefore, chart studies indicate two possible scenarios. A retest of H1 support at $1,983 (or maybe even H1 support at $1,974) or a straightforward ‘no frills’ breakout above $2,000 to take on higher levels.

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Charts: TradingView

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

 

About the Author

Aaron Hillcontributor

Aaron graduated from the Open University and pursued a career in teaching, though soon discovered a passion for trading, personal finance and writing.

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