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The price of gold had a hugely volatility week last week as the yellow metal hit a new multi-month trading high and subsequently reversed towards the $1,855 level, and then bounced back towards the $1,900 level.
Looking at the week ahead, the stage is set for further gains in gold as the technical surrounding gold are still extremely firm. Additionally, the strength of dip-buying demand for the metal around $1,855 hints at further big gains ahead for the yellow metal.
Inflationary pressure has traditionally been a friend to gold, so has the constant theme of more QE for longer since the start of the COVID-19 pandemic. Should we see the US CPI inflation number running hot this week then the price of gold is likely to run above the $1,900 level towards the best levels of last year.
Impressively, gold tested back towards a key trendline last Friday and bounced sharply from the mentioned trendline. Historically, retests and bounces from key technical areas often signal a continuation of the prevailing trend.
It is also worth noting that gold has spent three-weeks above its key 200-day moving average, and its 52-week moving average. Furthermore, the William’s Alligator indicator is issuing a powerful buy signal right now, which hints at more medium-term upside.
Current sentiment metric towards gold shows a clear bullish bias. The ActivTrader Market Sentiment tool shows that some 62 percent of traders are bullish towards the yellow metal right now, marking an 11 percent increase since last week. Retail traders are often on the wrong side of the market, and more so when large retail sentiment skews form.
Gold short-term Technical Analysis
The short-term technicals surrounding gold show that a huge, inverted head and shoulders pattern will form if gold reaches the $1,915 level this week.
According to the size of the potential bullish pattern the price of gold could rally towards the $1,975 level. Failure to surpass or hold above the $1,915 level this week could see a pullback towards the $1,980 to $1,970 area.
A bearish head and shoulders pattern is also present and is warning that a strong price dip towards the $1,830 level could still take place. I would expect any dip towards the $1,830 level to be quickly bought.
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Gold Medium-term Technical Analysis
According to the daily time frame, gold staged a key technical test of a large falling price channel last week, meaning that the bullish breakout still remains valid.
I would expect the $2,070 level to be achieved if the channel break remains in play. Bulls are likely to test towards the $1,975 and $2,010 levels on the way to the $2,070 level.
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