The price of gold has come off its highs with the dollar attempting to recover. In the week ahead, further movements in the dollar and in equities stand to impact gold prices.
Starting with equities, the S&P 500 has rallied to close the gap going back to February. This is an important one, it’s when things started to escalate with regards to the Coronavirus.
In SPY, the level to watch is $333.50. While the index has currently rallied above this level, and there haven’t been any signs of sellers, it remains relevant. A drop back below it could mark the start of a near-term bearish move.
While gold prices and equities have historically moved opposite of each other, keep in mind that for the past year or so, they’ve rallied alongside each other.
Moving on to the US dollar. The trade-weighted index is catching a bid and several major currency pairs are stalling in their upward momentum.
USD/CAD shows several signs of exhaustion when looking at weekly candlesticks. EUR/USD has failed to cross 1.1900 twice now, and GBP/USD has major resistance at 1.3150 that is holding it lower.
The trade-weighted index, DXY, posted a doji candle on a weekly chart which signals exhaustion.
The technicals at this point don’t necessarily suggest a major reversal is taking place, but keep in mind the dollar is overextended to the downside. A recovery would not be unusual at this stage.
But a stronger dollar could weigh on gold prices, which are also extended in the move to the upside. This could lead to a bit of a consolidation in gold prices in the week ahead.
Friday’s downside move in gold resulted in a bearish engulfing candlestick pattern on a daily chart. Normally, this hints of a reversal, but considering the momentum-driven bullish run as of late, it might best be seen as a cautionary signal.
Near-term resistance on an hourly chart is seen near 2050 and this is the first major hurdle. Beyond that, daily resistance is found at 2062. This could prove to be a major hurdle in the week ahead, if we get there.
On the other hand, a break above it stands to accompany an increase in upward momentum.
So far, the price has been consolidating in a small range in early trading on Monday. This is typically a precursor for a continuation in the near-term bearish direction.
There isn’t a lot of downside support in proximity. The risk here is for a move to the 1980 level which previously acted as strong resistance.
If the dollar extends on its momentum and equities pare back, this level could be seen this week.