Gold prices plunged towards their lowest trading level since April 2020 in early-week trading as the US dollar index surged towards the 114.50 level, which caused widespread selling to assets that have an inverse relationship with gold.
Going forward, now that gold is starting to break into a lower trading range there is definitely a vulnerability to precious metals and the fact that they could just continue lower to fresh multi-year lows.
Traders now need to keep a close eye on the US dollar index, due to the fact that logic dictates that if the greenback continues to strengthen against other major currencies then gold is likely also headed lower.
I would also suggest keeping a close watch on the $1,680 level. This is the technical area that bears need to defend this week in order to keep the latest range break firmly on track.
Non-yielding gold also has fundamentals against it. Rising US rates and bond yields creates a toxic environment for gold. With inflation high this is a trend that is probably only going to get worse.
Current sentiment metric towards gold show that sentiment has remained the same since last week, which could hint an eventual bearish breakdown in the price of gold.
The ActivTrader market sentiment tool shows that 65 percent of traders are bullish towards gold. Going forward, we really need to see a negative bias by retail to help the chances of a stronger rally.
Gold short-term Technical Analysis
According to technical analysis gold remains under pressure after igniting a bearish head and shoulders price pattern with significant downside potential on the four-hour time frame.
According to the size of the mentioned price pattern the price of gold could fall by a further $120.00, taking the price of gold down towards the $1,580 support level. Gold has so far reached $1,630, meaning that more losses are still likely.
Gold Medium-term Technical Analysis
The daily chart shows that the yellow metal has broken under the very lower end of its price range. The move under the range low could cause gold prices to move into a much-lower price range.
Looking at the double top pattern and the fact gold is in bear market, at a very minimum, we could see the price of gold moving the $1,500 level, or even lower around the $1,400 level in the medium-term.