Technical analysis for Gold January 2022

In the last couple of years, gold has shown us a relatively strong uptrend which started in August 2018. Since then, the gold price has increased healthy, making higher highs and minor corrections to climb further in price.

In August 2020, the gold price peaked at 2070 US dollars per ounce. Since then, the gold price direction changed to a downtrend and fell from August 2020 to the beginning of March 2021. The gold price has been moving sideways between 1685 – 1920 US dollars per ounce from that point.

This technical analysis article analyzes the indicators and potential breakout points for a new uptrend and possible breakout points for a downtrend.

Technical indicator analysis

Trendlines / Support & Resistance

*Red lines are downtrend. The heavy red line is the long-term trendline.
*Green lines are uptrend. The heavy green line is a long-term trendline.
*Blue lines are short term support & resistance lines

(Picture 1. XAUUSD Trendlines / Support & Resistance)

• Long term downtrend line and long term uptrend lines are moving in a direction to form an uptrend flag pattern. (it is not established yet).
• Currently, we see that gold wants to move higher. To do so, it must break the 1832 resistance line.
• Furthermore, it must break out from the long-term and short-term downtrend lines to move even higher.
• To break all the beforementioned resistances, gold needs some fundamental catalyst – for example, sudden hyperinflation.
• Short-term uptrend lines have beautifully supported gold price movements upwards, which means it would be hard to break through them for the price to drop.

Fibanocci retracements

(Picture 2. Fibanocci retracements)

• Most important Fibanocci retracements are 38.2% and 61.8%
• When looking at picture 2. we see that Fibonacci retracement of 38.2% matches almost identically with the previously placed resistance line. This gives a great indication of solid resistance when breaking above that, potentially a strong upward movement.
• The previously marked support line matches with the Fibanoccis 23.6% retracement line, indicating that support is less strong than resistance.

Moving Averages

• In Picture 1. and Picture 2. we see an unsymmetrical red line – this is a 250-day Moving Average.
• The 250-day moving average is also considered a yearly moving average.
• Why 250 days, not 364 days? It’s because on weekends markets are closed.
• The 250-day moving average indicates a potential forming uptrend because the price has broken above the 250 MA line. This is usually a strong indicator of price movements.

RSI divergence

• RSI is currently not overbought nor oversold.
• The current situation indicates that the price could move higher because RSI is above the middle line of 50.
• When considering that RSI suggests price moving higher and 38.2% Fibonacci retracement matches the support line, we can guess that price can go around 1832-1835 US dollars per ounce.
• We should keep an eye on RSI and the upcoming resistance line. If a strong RSI divergence forms near the Fibanocci 38.2% line, there is a high potential for the price to drop.

Fundamental analysis

*New York (CNN Business) – Prices remain high in America, and inflation shows no sign of slowing down anytime soon.

The Bureau of Economic Analysis reported Thursday that a critical measure of US inflation rose 5.7 percent in the year ended November. The consumer spending price index increased at the fastest rate since July 1982.

Each month, economists use a variety of inflation gauges, but the Federal Reserve’s preferred measure is PCE inflation, which informs the central bank’s policy decisions.

*Over the past five years, gains by US real yields have been generally correlated with losses by gold prices. A simple linear regression of the relationship between the weekly price change in gold prices and the weekly basis points change for the US 10-year actual yield reveals a correlation of -0.36. As a rule of thumb, rising real yields are bad for gold prices – DailyFX source by Bloomberg

Read also

1. What effect does inflation have on the price of gold?
2. Germans wary of inflation buying more gold
3. Gold Demand Trends Q3 2021

Disclaimer: This article is for informational purposes only and is not intended as an investment analysis or recommendation to sell or buy commodities. Tavex is not responsible for any decisions made based on this information. Investing is associated with opportunities and risks, and the market value of commodities can both increase and decrease. Past or future yields on the commodities and financial ratios shown above do not represent a promise or an indication of future earnings.