Will gold’s double bottom trigger a 15% rally higher?
Gold prices enjoyed an impressive +40% rally higher during the coronavirus pandemic before falling for the last few months of 2020. After a push higher in late December, buyers could still not break the 1,950.00 level sending gold prices crashing lower to 1,819.00.
However, at this level, the price of gold has put in a double bottom pattern which is seen as a bullish technical sign. On 11 January and 18 January, the price of gold tried to break through the 1,819.00 price level but failed to close below it.
Source: Admiral Markets MetaTrader 5 Web, Gold, Daily - Data range: from May 27, 2020, to Jan 20, 2021, performed on Jan 20, 2021, at 7:30 am GMT. Please note: Past performance is not a reliable indicator of future results.
Last five-year performance: 2020 = +25.13%, 2019 = +18.30%, 2018 = -1.60%, 2017 = +13.17%, 2016 = +8.55%, 2015 = -10.30%.
This could be a sign that sellers are now struggling to push the market lower, allowing the opportunity for buyers to step in.
- A close above the recent swing high at 1,864.00 would be a sign buyers are willing to take control of the market where initial targets would be previous horizontal resistance at around the 1,950.00 level.
- A close below the double bottom pattern at around 1,803.00 would invalidate the bullish scenario and may encourage sellers to push the market lower, with traders targeting the next swing low at around the 1,764.00 price level.
Much of the flows may depend on the direction of the US dollar. The greenback has been one of the weakest currencies in recent months but has started to stage a potential reversal. If US dollar bulls take control of the US dollar it could spell trouble for gold. However, with new Treasury Secretary Janet Yellen and her new policies, some analysts are forecasting more downside for the US dollar which could help lift gold prices.
- Learn more about commodity trading in the ‘How to Start Commodity Trading’ article.
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