The price of gold has had a hugely volatile trading week as a major move in the US dollar currency and the ongoing vote surrounding the massive $3.5 trillion US infrastructure spending bill.
Until the fundamentals become crystal clear in regard to the infrastructure bill we should expect more volatility in the price of gold because the implications of the spending bill could have huge inflationary effect.
Moreover, the big breakout in the US dollar index has caused a raft of technical weakness but the bull run is not yet over for the yellow metal according to long-term technical analysis.
Gold bounced from a critical spot yesterday, meaning the $1,720 to $1,730 price area. This is a must defend level on a daily basis. Any weakness under this area and $1,680 quickly comes into focus.
Should we see this important technical area $1,680 to $1,720 continuing to hold we should probably expect a solid bounce in gold. Tentative signs of a major price floor are therefore forming.
Current sentiment metric towards gold is currently suggesting further short-term losses are still likely. The ActivTrader market sentiment tool shows that 70 percent of traders are bullish towards gold.
We probably need to see a wholesale shift in traders sentiment towards gold in order for a major bounce to occur. I think the appropriate time to look for gold strength is when the crowd is ultra-bearish towards gold and probably even silver.
Gold short-term Technical Analysis
The short-term technicals for the yellow metal shows that a complex inverted head and shoulders pattern is starting to form, which could hint that a big recovery is coming when the pattern is completed.
Looking at the four-hour price chart the recent price dip does look like it has created the final right-hand shoulders. The fact that the $1,680 level help certainly hints that this is the final dip.
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Gold Medium-term Technical Analysis
The weekly chart shows that gold is clearly starting to form a cup and handle pattern, which looks to be near completion. This is very interesting considering the inflation in the US and the infrastructure bill.
An explosive breakout above the $1,900 level is likely to prompt a test of the $2,080 and $2,200 level. Overall, bulls need to regain gold’s 200-day moving average to really get the bull party started again.
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