Crucial Level for Bearish Continuation Becomes Clearer

Analysis of Gold (XAU/USD).

• Gold lagging behind as markets price in higher future interest rates
• Technical Considerations: Considered a tripwire for further sale in 1833
• The analysis in this article makes use of chart pattern and key support and resistance levels. For more information, see our comprehensive educational library

Gold continues to lose favor and appears to be an unattractive proposition as interest rate expectations shift higher. At the beginning of the month, the bond markets were expecting the Fed’s final money rate to be around 4.8%. The interest rate has risen and is now hovering around 5.3%, almost 50 basis points higher. This was in reaction to hotter-than-expected US labor data (NFP) and economic data (ISM PMI Services) which suggested the Federal Reserve Bank will be forced to hike rates even more before it remains stable at elevated levels. Higher interest rates make the interest-free commodity like gold less attractive, especially when disinflation sets in.

Gold: Technical Considerations

In early February, the 4-hour chart helped reveal a bear flag – a typically bearish continuation pattern that appears to have largely played out. In this pattern, it is not uncommon for the continuation (bearish move) after the flag consolidation phase to follow that of the original impulse. What we have witnessed is a much smoother decline compared to the sharp sell-off that followed earlier in the month.

However, recent price action seems to point to a slowdown as prices consolidate around a fairly key 1833 interest rate level.

Gold (XAU/U.S. dollar) 4-hour chart

Source: TradingView, created by Richard Snow

1833 coincides with an earlier peak late last year and has so far acted as a deterrent to lower prices. Gold prices actually traded below 1833 but failed to close below that crucial level in daily chat. Hence, this has become crucial in assessing the potential for a sustained move lower towards the 1800 psychological level. Resistance appears at 1875, which roughly coincides with the “flag” or channel level, which would necessitate a re-evaluation of the bearish swing thereafter. Additionally, 1875 was a pivot for rising prices in both June 2022 and November 2021.

Gold (XAU/USD) daily chart

Source: TradingView, created by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX