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The price of gold finally staged a much-needed technical breakout last week, after the yellow-metal surged through the $1,755 level on the second time of trying, which ignited a large bullish reversal pattern across the lower time frames.
It should be noted that the counter intuitive move higher in gold happened after the United States economy posted extremely strong retail sales data for the month of March, and weekly jobless claims crashed by 200,000.
Notable buying demand amongst hedge funds for gold was also reported last week alongside central bank buying This could potentially be the start of a meaningful move higher in gold if hedge funds are starting to turn bullish towards the yellow metal after the multi-month correction lower from just above $1,900.
Buying volumes were also fairly significant on the spot and the futures market, which is usually a good indication that the ongoing breakout move has some validity. The only caveat is that strong US data is indeed counter intuitive if we consider that the FED is more likely to reduce QE under those circumstances.
A significant increase in geopolitical tensions, and the presumption that the Biden administrations continued pledge to spend, and release more economic stimulus packages are some of the reasons why gold moved higher last week in the face of strong US data.
Another point to make is that gold started to move higher when Bitcoin faltered last week. The fact that Turkey banned Bitcoin means that Turkish nationals may have to stock up on gold and silver as a natural replacement for the now banned Bitcoin. The is especially true if the Turkish lira continues to decline and lose value.
On the technical front bulls need to cement gains above the $1,780 level to really accelerate buying and force a technical breakout above a falling price channel, which has been in place since the start of the year.
Current sentiment towards gold on the ActivTrader Market Sentiment tool shows that traders are growing more bearish with positive sentiment at 60 percent positive. This is a decrease of nearly six percent since last week is bullish as traders are turning more negative as the price of gold starts to rise.
Gold short-term Technical Analysis
The short-term technicals for gold show that a large, inverted head and shoulders pattern has finally been ignited, following the recent move above the $1,755 level.
According to the overall size of the invalidated bearish pattern a rally towards the $1,830, with the $1,800 level acting as interim resistance.
It should be noted that traders will likely buy any dip into the $1,755 price area, although realistically, this area must hold, give, or take a few US dollars. Much below $1,730 and gold will look in trouble again.
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Gold Medium-term Technical Analysis
According to the daily time frame the price of gold is fast approaching the top a falling price channel, which is currently located around the $1,780 resistance level.
If the breakout happens then gold could surge as the price channel is pointing to a possible price advancement of nearly $200.00.
The $1,830 and $1,880 levels are likely to be the medium-term bullish targets if a breakout takes place above the channel.
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