Gold is battling the struggle between the pandemic or things are back to normal, explains Fawad Razaqzada.
Gold broke down on Friday as stocks rallied on the back of the much-stronger than expected U.S. employment situation report, which further fueled optimism about the recovery.
The U.S. Dollar Index closed higher, ending a run of losses. However, at the start of this week, the precious metal has started higher again on the back of a mixed performance from the dollar. It remains to be seen whether gold will be able to add to its gains or turn lower again given the ongoing equity market rally.
I think there is a greater risk for gold to go down than up from here as the short-term outlook favors the bears given the ongoing risk-on sentiment.
From a technical point of view, the precious metal is currently testing Key resistance level at $1,696 (see chart).
Source: TradingCandles.com and TradingView
The above level was the low made on Thursday, which was taken out decisively on Friday. Once support, it is now likely to offer resistance.
If the bears do come in around here as I suspect might be the case, then gold may go on to at least drop below last week’s low at $1670, where the trapped bulls’ stop orders might be resting.
Meanwhile the bulls will have to wait for the right opportunity given the metal’s struggles over the past few weeks. So far, each breakout attempt has failed. We need to see evidence that the sellers are getting trapped, before looking for bullish ideas again.
Fawad Razaqzada, Senior Market Analyst at TradingCandles.com, is an experienced forex market analyst and economist. He posts market analysis on all sectors from both a technical and fundamental. Previously he served as a market analyst with FOREX.com and City Index.
