Safe-haven assets caught a strong bid
in recent trading, directing Spot Gold to all-time highs of US$3,220/troy ounce
versus the US dollar (XAU/USD). The shift towards safe-haven markets was fueled
by softer demand for the USD as markets fled dollar assets, as well as
escalating trade tensions between the US and China. Unsurprisingly, the Swiss
franc (CHF) and Japanese yen (JPY) also attracted substantial bids, with the
USD/CHF pair notching up losses of nearly 4.0% – its largest one-day drop since
2015!
Monthly Resistance and Oversold Conditions
Several desks are reportedly eyeing
US$3,500 as the next upside objective for Gold; however, the monthly chart
reveals it is considerably overbought according to the Relative Strength Index
(RSI). You will note the RSI has remained within overbought territory since
mid-2024 and recently touched gloves with familiar resistance between 87.31 and
82.20. This area boasts historical significance from as far back as 2006, and
each time the Index has approached the resistance, a correction/pause typically
followed in the yellow metal. Consequently, it raises the question about
whether buying is set to moderate/pause at the monthly resistance area between
US$3,264 and US$3,187 (made up of 1.618% and 1.272% Fibonacci projection
ratios, respectively).
Daily Demand Zone; Dip-Buying?
Meanwhile, on the daily chart, price
action came within a stone’s throw of testing support from US$2,942 at the
beginning of the week before rallying to all-time highs noted above. What is
interesting from a technical perspective is that the move left behind a demand
area at US$3,000-US$3,058, which, in my opinion, represents a key technical
zone.
With Gold firmly entrenched in a
strong uptrend, dip-buyers could emerge from the daily demand area if a
correction occurs. That said, given technical indicators on the monthly chart
suggesting buyers could pump the brakes, any dip-buying activity would likely
be approached with caution. Confirmation – such as a bullish candlestick
signal or supporting price action on lower time frames – might be required
before pulling the trigger. However, any movement below the mentioned demand
area signals bearish strength from the monthly resistance zone, and potentially
opens the door to short-term selling opportunities, targeting daily support at
US$2,942, closely followed by support at US$2,865, and possibly US$2,790.
Written by FP Markets Chief Market Analyst Aaron Hill
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