Consolidation has been the name of the game for most asset classes lately, but can gold still go for one more breakout before the year ends?
And which way might it go?
Here’s what I’m watching on the 4-hour time frame.
Gold (XAU/USD) 4-hour Chart by TV
Risk-on flows and anti-dollar sentiment propped gold prices higher during the latter half of December.
However, thin liquidity in the past week kept big moves in check. The precious metal has formed higher lows and slightly higher highs to consolidate inside a rising wedge pattern visible on its 4-hour chart.
A breakout seems due soon, possibly resulting in either a rally or selloff that’s the same height as the formation. So which direction will it go?
Technical indicators are giving mixed signals. The 100 SMA is above the 200 SMA to hint that a bullish move is likely, but Stochastic has been indicating exhaustion among buyers for quite some time.
If the oscillator turns lower, watch out for XAU/USD following the move down south. In particular, a break below the wedge bottom and R1 ($2,077.25) could be followed by a drop to the next downside targets like the Pivot Point level ($2,046.65) or S1 ($2,022.61) near the 100 SMA dynamic support.
On the other hand, keep your eyes peeled for an extension of the rally to R2 ($2,101.30) or even the monthly highs near R2 ($2,131.89) if gold busts through the wedge top.
In any case, make sure you’re updated on headlines that could strongly impact policy expectations and overall market sentiment when trading this one!