Gold price prediction: bearish formation to define direction in the short term

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Nov 29, 2021
  • Gold price is still below the crucial $1,800 following subtle movements earlier on Monday.
  • The strengthening US dollar has continued to curb the precious metal's gains.
  • Amid the rising Treasury yields, gold price may remain within a horizontal channel.

Gold price movements at the beginning of the week are rather subtle. Notably, it ended the past week on a low amid the strengthening US dollar. In the new week, the focus will be on the Fed policymakers’ speeches and overall performance of the greenback.

Strengthening dollar

The dollar index, which measures the value of the greenback against a basket of six currencies, is on a rebound after easing late-last week. On Wednesday, it surged to $96.95, which is its highest level since July 2020. At that level, it was in the overbought territory with an RSI of 73. Even with the subsequent corrective pullback, it ended the week above $96, which has been a crucial support zone for over a week now. Earlier on Monday’s session, it was up by 0.29% at 96.35.

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In the new week, the newly re-elected Fed Chair’s testimony and speeches from other Fed officials will likely impact gold price. In the recent Fed meeting minutes, a rising number of policymakers highlighted their willingness to speed up the tapering of asset purchases and hiking interest rates if high inflation persists.

Investors will also be keen on the Treasury yields. Rising yields usually support the US dollar while exerting pressure on precious metals. The benchmark 10-year US bond yields ended the week down by 9.4% at 1.48 after surging to a one-month high at 1.69 earlier in the week. However, it has since rebounded above the psychological 1.50.

Gold price technical outlook

Gold price ended last week below the psychologically crucial level of 1,800 after rebounding above it earlier in Friday’s session. While it is on a rebound in Monday’s session, it remains below this key support-turn-resistance zone. At its current level, the precious metal has erased most of the month’s gains. Indeed, it is only 1.93% above the month’s low of 1,759.18. At the time of writing, it was up by 0.05% at 1,794.29.

On a four-hour chart, gold price is trading below the 25 and 50-day exponential moving averages. At the same time, it has formed a head-and-shoulder pattern, which is a bearish formation.

Based on these technical indicators, the precious metal will likely record further losses in the new week. The horizontal channel between the 50-day EMA at 1,813.40 and November’s low at 1,759.18 will remain a crucial one in the ensuing sessions. Notably, this range has been an important one since mid-October.

In the immediate term, the 25-day EMA at 1,800.98 will be the resistance level to look out for. Past that level, it may hit the horizontal channel’s upper border of 1,813.40 before pulling back to around the psychological zone of 1,800. On the flip side, a drop below the current price will likely place the support at 1,775.00 or lower at the channel’s lower border of 1,759.18.

gold price
gold price
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