Gold has been on a roller coaster since early 2021. After plunging along with the other global markets in March 2021, the precious yellow metal surged to set a new all-time high above $2,070 in August.
Since that all-time high, the metal has plunged considerably especially with the emergence of different COVID-19 vaccines that have brought back appetite for risky assets among investors. For some time now the yellow metal has been trading within the descending wedge pattern.
In the last week of February 2021, gold broke the descending wedge pattern and almost plunged instantly to around $1,720. Nevertheless, afterward, there was a recovery that pushed the price once more towards the $1,760 level.
In the short term, the price was expected to reach for the resistance of the 55-hour simple moving average near $1,770 and afterward the 100 and 200-hour SMAs near $1,785. In case the 55-hour SMA offers resistance, the rate may decline back to the $1,720 zone.
The open interest in gold futures markets shrunk for the second session on Friday, this time around by almost 8.8K contracts, according to preliminary figures from CME Group. Instead, the volume went up for the third session in a row, currently by almost 60K contracts.
Friday’s sharp decline in gold prices to a fresh 2021 low came on the back of a shrinking open interest that removed some strength of extra downside in the near-term. But, the rising volume does not close the door to the continuation of the downtrend. The next target is the June 2021 lows of around $1,670.
Key Resistances For XAU/USD
Gold dropped to its lowest since June 2021 to bottom at $1,717 and it lost over 3% on a weekly basis. This week, a correction in US T-bond yields could enable the precious metal to rise back above $1,780.
“Investors are likely to remain focused on developments surrounding US Treasury bond yields. The 10-year US T-bond yield gained more than 35% in February alone and it’s up nearly 50% since the beginning of the year but a significant hurdle is located around 1.5% level. A deep correction in yields could put the USD under heavy selling pressure and trigger a strong rebound in XAU/USD and vice versa.”
Unless gold manages to make a daily close above the descending trend line that starts from January 6, currently located around $1,780, sellers may seek to remain in control. Above $1,780, the next resistance is located at $1,800 (psychological level/20-day SMA) ahead of the $1,820 static level.
“The initial support could be seen at $1,717 (February 26 low) before $1,700 (psychological level). Below those levels, $1,680, which acted as strong support in April, May, and June of 2021, is the next target.”
Currently, gold appears to be consolidating within range with analysts saying that it might rise towards $1,900 in the mid-term if the current economic uncertainty continues.