The past six weeks have had a lot of economic noises that have increased volatility in almost all of the global markets. Amid all that noise, gold appears to have resumed its traditional role of a safe-haven asset. Gold prices are constantly surging as economic uncertainty increases.
Stimulus packages seemed to be dealing with the aftermath of the COVID-19 pandemic plunge but the return of tariff threats from President Trump on China has complicated market movements. For now, the global economic recovery majorly depends on relentless effort and hope that the recovery favors the economy to make the looming recession a short one.
The precious metal’s bullish overview was triggered by increasing stimulus plans and efforts from the central banks throughout the world. But, now it seems to have found some new energy from the tariff wars and tensions that appear to be increasing between the United States and China.
In all of the past market crashes, gold was seen to lose its haven appeal during the panic-selling phase but it then resumes that position whenever a recovery begins to take shape. The US economy is extensively vulnerable currently, therefore, Donald Trump may probably not follow up on the latest tariff threats.
Nonetheless, the risks that arise from such an outlook seem countless and that scenario will majorly benefit gold in the short-and-mid term.
Gold Price Technical Analysis
The gold prices spent a lot of the past week trading carefully lower as the metal resumed consolidations after it encountered strong resistance in mid-April. That represents a significant shift in XAU/USD’s earlier upside trend that took it from bottoms in March to the highs in April.
Since that time, gold’s behavior has shifted from strongly bullish to neutral especially after the rising support was broken as seen in the daily charts. Interestingly, some bearish technical warning signs undermine the possibility of the resumption of an upward trend.
Analysts discovered an Evening Star candlestick pattern that emerged almost at the end of April and since then it has seen cautious downside follow-through. But, at the same time, the next critical support zone held around $1,678. Smashing that price may pave the way for a reversal in the weeks ahead. Nonetheless, more sideways price actions may be in store soon.
Focusing on the 4-hour chart shows a closer look into what appears to be a Double Top in the formation. This is a bearish chart pattern where the two peaks; with a pullback in-between, come before a reversal of the previous uptrend.
Support has formed strongly between $1,657 and $1,669 which may pave the way for a strong bounce to resistance located between $1,747 and $1,760. Any such scenario may even open the door for a Triple Top which is another bearish chart pattern.
Pulverizing the Double Top support may confirm the formation and pave the way for a reversal in price action. For now, that is lacking. In the case of a drop ahead, focus on the inflection point that is located between $1,637 and $1,643.
If that region is taken out, that may introduce a revisit of the lows from the beginning of April. These lows stood between $1,566 and $1,575. On the flipside, surpassing the Double Top resistance will expose the 2012 highs that stand at $1,975.
For now, all that most investors are doing is to adopt a wait-and-see strategy. They hope that the markets will soon form a constant trend. If a recession arises, gold may surge towards the all-time highs. But, time will tell how the global markets and economies will perform as the recover from the COVID-19 shake-ups.