The Gold Spot Price (XAUUSD) is on track to close a third consecutive week in positive territory after gaining 1.26% week-to-date. Weakness in the post-lockdown recovery of China and the subdued economic fundamentals in the U.S. has prompted the market to search for safety amid a weakening Greenback.  

Following the decline in U.S. inflation, from 4% to 3%, along with a weakening labour market, the Greenback was hung out to dry, paving the way for the yellow metal’s advance. In addition, China’s slower-than-anticipated lockdown recovery left the market jittery over the global growth prospects, adding to the yellow metal’s appeal.  

Technical 

The XAUUSD has firmly taken the route higher as the spot price fled from its 100-day moving average following a crossover above it. Prior highs and resistant levels have been shattered, with the last being the 1967.88 level which now forms a support level. The 1983.39 level, a high formed in June, has been retested after a sharp surge in the Asian session, which was likely prompted by the unchanged 1-year and 5-year Loan Prime Rate by the People’s Bank of China.  

If the market follows a textbook example of a rejection of the resistance level, a reversal could play out, given that supply outweighs demand. The 1967.88 level will likely be earmarked as a point of interest to the downside. In contrast, a high volume breakdown above the resistance level could expose the spot price to higher resistance levels based on the Fibonacci Extension. The next likely significance level to the upside could be the 23.60% level at 1991.71.  

Summary 

The 1983.39 level will likely be pivotal in determining where sentiment lies. Given the rejection of the level on the 4H chart, along with the overbought Relative Strength Index, a reversal could play out with the 1967.88 level potentially a destination. Alternatively, a high volume breakout above 1983.39 could indicate the presence of upside momentum, exposing the spot price to the Fibonacci Extension levels.  

Sources: People’s Bank of China, Reuters, TradingView 

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