Gold Heading for Correction
FxPro Financial Services Ltd | Jan 31, 2023 10:15AM ET
Gold is declining for the fourth consecutive session, flirting with the $1900 level and $49 below last Thursday's peak. Gold's 2.5% retreat is much more pronounced than the dollar index’s 1% growth over the same period.
The current reversal to the downside is linked to several factors and could be relatively long and deep, although it is unlikely to break the long-term uptrend.
The formal trigger for a wave of dollar buying has now been a pull into defensive assets ahead of a hectic second half of the week, which includes interest rate decisions from the Fed, ECB, and Bank of England, as well as releases on eurozone inflation and US jobs report.
After a rally of more than 20% from the September and November double lows of $1617, a technical correction above $1900 is needed. Accumulated bull fatigue was evident in last week's relatively deep intraday drawdowns.
In addition, the RSI has been in overbought territory for two weeks on the daily timeframe and returned to neutral territory below 70 last Wednesday, which often signals the start of a correction. At the end of November, gold lost 3.3% on a similar signal before rebounding.
Gold is also overbought on the weekly timeframe, which has almost always led to a sudden reversal or a prolonged stall in this area.
Now it is worth preparing for a deeper correction as the gains of the past two months have been more significant. The Fibonacci patterns suggest a potential retreat to $1862 if we look at the November-January momentum and to $1822 if we look at a full correction of the entire velocity from the November lows.
The 50-week moving average is also targeting the $1820 area. This is a crucial trend indicator where buyers and sellers will battle it out for the long-term trend. However, it is too early to speculate on the outcome of this battle.
The FxPro Analyst Team
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.