Gold Technical Analysis: Beware of Head and Shoulders Formation

In general, I still prefer to buy gold from every falling level, and the closest support levels currently are 1963, 1945, and 1930 dollars, respectively.

  • At the beginning of trading this week, the price of gold XAU/USD was subjected to selling pressure, stabilizing around the support level of $1,977 per ounce at the time of writing the analysis.
  • Meanwhile, the selling did not amount to a general change in the direction of gold, which remains bullish and is most likely to return to moving towards the psychological resistance level of $2,000 per ounce.
  • Moreover, global geopolitical tensions are expanding, and gold is a traditional safe haven for investors and even global central banks.

 

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What Is Expected for the Price of Gold in Light of Global Geopolitical Tensions?

On the other hand, the events that are perhaps most likely to shake up markets this week are the speeches scheduled for officials from the Federal Reserve. Last week, the Federal Reserve kept the US key interest rate unchanged for the second consecutive time, leaving it at its highest level since 2001. The federal funds rate was raised from near zero in early last year in the hope of controlling high inflation.

Also, perhaps most importantly for markets, Federal Reserve Chairman Jerome Powell also hinted that the rapid rise in Treasury yields and related disruptions in financial markets could serve as substitutes for further rate hikes if they remained "persistent." Consequently, this led to increased hopes that the Fed may have finished raising rates, and it also prompted traders to bet that the central bank could start cutting rates in the summer.

The question now is: what is expected for the price of gold in light of global geopolitical tensions?

As was our expectation at the beginning of the crisis, the CEO of Newmont says that the price of gold XAU/USD could see new highs if the conflict in the Middle East escalates. It is possible that gold prices could reach new record levels soon if the war between Hamas and Israel continues to escalate, according to Newmont CEO Tom Palmer. Thus, Palmer added in an interview with the Financial Times: "There are definitely scenarios that could see it rise through record levels."

Since Hamas fighters launched their attack on Israel, the price of gold XAU/USD has risen sharply as investors have fled in search of the safe haven metal, which is seen as a store of value during times of geopolitical uncertainty. By late October, the spot price had surpassed the key $2,000 per ounce level. Consistently, this is a level that was last seen in May of this year during the aftermath of the regional banking crisis in the United States. Recently, it has since stabilized in the $1,980-$1,990 per ounce range, a rise of nearly 10% in one month.

Palmer told the Financial Times: "The things we've seen in the past few weeks are one of the factors that have made gold enjoy the levels it's reached now."

Correspondingly, the rise in precious metal prices also comes as the US Federal Reserve approaches the end of its rate-hike cycle. Investors' view that interest rates would be higher for longer was a major factor in driving down gold prices before the conflict between Israel and Hamas. Palmer added: "When I think about the price of gold, I think there are a lot of fundamentals that lie behind the levels that have held firm for most of this year." "Unfortunately, there are events happening all over the world that are driving up the price of gold."

Palmer's interview comes on the same day that his company announced a $15 billion deal to acquire Australian mining company Newcrest, strengthening the company's position as the world's largest gold producer. He added by saying: "This is the largest deal in the gold industry and one of the largest deals in the mining industry." And "half of the world's largest gold mines will be in our portfolio.”

Gold price forecast for XAU/USD today

Despite the recent selling operations, the price of gold (XAU/USD) still has opportunities to return to breaching the psychological resistance of $2000 per ounce again. As global geopolitical tensions have not ended, but rather are expanding, it is a fertile environment for gold to achieve its gains. A head and shoulders formation has begun to appear on the daily chart, which is a technical stage that may increase selling operations, especially if the US dollar rebounds. In general, I still prefer to buy gold from every falling level, and the closest support levels currently are 1963, 1945, and 1930 dollars, respectively. Therefore, the return of the gold price above the psychological resistance of $2,000 per ounce will increase the bulls’ control and thus prepare for stronger upward breakthroughs.

XAU/USD chart

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Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.