The big move in gold prices past week after the bond-buying announcement by the European Central Bank and hopes for more stimulus from the U.S. Federal Reserve in the coming week encourage traders to believe that gold prices will rise further.
Analysts expect a new stimulus plan to be announced in the U.S., which will lower the value of the U.S. dollar. This looks as a very possible outcome after the release of a weak jobs report on Friday following a lower-than-expected August data. If some form of stimulus is announced gold could trade up to or even surpass yearly highs up at $1,800, traders believe.
On the other hand, gold is due for a correction after such a strong rally past week, especially if no new stimulus are announced. The yellow metal may have trouble extending on last week’s rally after the bulk of the inflationary news is out. This will cause investors to question whether to keep gold as a core holding or take the money and opt for profit taking.
From a technical perspective, gold remains poised for further gains in the medium-to-long term with the past week’s advance taking the precious metal to a 100% Fibonacci extension taken from the August 2nd and 31st lows at $1739. While broader metrics do suggest further advances in the weeks ahead, a near-term correction is extremely likely as daily RSI hits extremes not seen since August of 2011 (just before hitting all-time highs at $1921). Daily interim support now rests with the 61.8% extension at $1704 and is backed by $1692 and the former May high at $1671. A break above the $1739 threshold exposes subsequent resistance targets at the 123.6% extension at $1762 and the 161.8% extension just shy of the $1800- mark.
Profit taking corrections may be considered at this point as dips in gold offering favorable long entries.
