Gold Price Prediction – Prices Form Bull Flag in Overbought Territory

Gold prices moved higher on Monday and should continue to gain traction as the dollar loses ground The Euro broke out of a 3-month range and tested the August highs. If the dollar continues to ease against the Euro, the yellow metal will experience tailwinds. US Pending home sales climbed 1.2% from the previous month, missing expectations which weighed on US yields. The 2-year yield dropped 1-basis points to 1.57, which is putting downward pressure on the interest rates differential moving against the US forward curve. This in turn is weighing on the dollar.

Technical

Gold prices moved higher forming a bull flag continuation pattern as prices are poised to test the November highs at 1,516. A break of this level would lead to a test of target resistance near the late September highs at 1,535. Support is seen near the 10-day moving average near 1,490. Additional support is seen near the 50-day moving average at 1,478. The 10-day moving average recently crossed above the 50-day moving average which shows that a short term up trend is now in place. Short term momentum has slowed after accelerating higher as the fast stochastic recently generated a crossover buy signal, but is now poised to generate a crossover sell signal. The fast stochastic is printing a reading of 96, well above the overbought trigger level of 80, which could foreshadow a correction.

The RSI (relative strength index) is now printing a reading of 73, rising from 71 which reflects accelerating positive momentum. The RSI is above the overbought trigger level of 70, and also points to a potential future correction. Medium-term momentum is positive as the MACD histogram prints in the black with an upward sloping trajectory which points to higher prices. MACD line generated a crossover buy signal at the beginning of December and continues to reflect positive momentum.