Gold TA: MACD Divergence Hints at Pullback, Is the Rally Losing Steam?

Gold prices have been going up recently even though it usually goes the opposite way with interest rates. This is confusing because higher interest rates typically mean lower gold prices.

There are rumors that China's central bank is buying a lot of gold. This buying could be because they want to move away from US dollars and Treasuries.

Looking ahead, gold prices are expected to stay high because interest rates are expected to go down soon. However, if the US Federal Reserve decides to be more aggressive with keeping interest rates high, that could hurt gold prices in the short term.

An important event to watch is the US inflation report coming out on Wednesday. If inflation is high, the Fed might be more likely to keep interest rates high, which could push gold prices down in the short term. But if inflation is low, the Fed might feel more comfortable cutting rates, which could boost gold prices further.

Daily Timeframe Gold Technical Analysis

Gold's on Uptrend

The price keeps going up and just hit record highs, with barely any pullbacks in between. This is a strong uptrend.

Traders are watching key levels

• Buyers: They would prefer to buy close to a trendline. This is because if the price dips slightly below the trendline but bounces back up, they haven't lost much. There's also a 21-day moving average around the trendline, which traders use as a support level, a price where the price might bounce back up.
• Sellers: They'd like to see the price fall below the trendline first. This would confirm a potential downtrend, and they could then bet on the price going even lower. Their target is another trendline around $2100, which could act as resistance, a price where the price might struggle to go higher.

Basically, buyers are looking for a good entry point to buy low, around the trendline, while sellers are waiting for a confirmation of a downtrend to jump in and short-sell, betting the price will go down.

Gold 4 hour Timeframe Technical Analysis

Gold's rally might be losing steam

• MACD shows that the recent price increase isn't reflected in the MACD indicator. This suggests the uptrend's momentum might be weakening. When momentum weakens, it often precedes price pullbacks or even trend reversals.

Potential buying and selling zones

• If the price pulls back, it might find support around the trendline we saw earlier. This is a good spot for buyers to enter, assuming the uptrend continues.
• Another indicator - 50% Fibonacci retracement level, also falls near the trendline. This level suggests a potential pullback point based on historical price movements.
• However, a significant pullback is more likely only if the upcoming US inflation data (CPI) on Wednesday is higher than expected. Strong inflation could cause the price to drop more sharply.

In short, the 4-hour chart suggests the uptrend might be slowing down. A pullback is possible, especially if inflation data is high. Buyers might be waiting near the trendline for a re-entry point.

Gold 1 hour Timeframe Technical Analysis

Zooming in on the short-term chart shows another trendline, even shorter than the ones on the daily and 4-hour charts. Similar to the other charts, there's a 21-day moving average line near the trendline, which traders use as support.

Looking for entry points

• Buyers: They're likely waiting for a pullback close to the trendline and the 21-day moving average (around $2300). This area is considered a defined risk zone because the potential loss is limited if the price falls below $2300 (support level). If the price bounces back up from here, they can potentially profit from another rally to new highs.
• Sellers: They'd prefer to see the price break below both the trendline and the $2300 support. This would be a stronger signal for a potential downtrend, and they could then jump in and sell more aggressively aiming for a price drop towards the major trendline around $2250, which could act as resistance.

In a nutshell, the 1-hour chart focuses on a very short-term buying and selling opportunity. Buyers are waiting for a dip near $2300 to buy again, while sellers are waiting for a break below $2300 to short-sell and aim for a bigger price drop.

Conclusion

Gold's recent surge faces a potential obstacle as the MACD indicator hints at weakening momentum. While the uptrend remains intact for now, a pullback is possible, especially if upcoming US inflation data comes in higher than expected. Traders should watch key support levels around the trendline and the 21-day moving average for potential entry points. A break below these levels could signal a more sustained downtrend.