The XAU/USD currency pair, which reflects gold’s value against the US dollar, has formed a notable bullish reversal. Look how beautifully it rebounded after hitting its 20-day Simple Moving Average (SMA). On Monday, the price of XAU/USD rose to over $4,450. This historic one-day $18.29 increase was driven primarily by geopolitical turmoil and negative economic reports from the United States.
The recent rally in gold prices is understandable when closely considering the pair’s performance against key technical indicators. For example, XAU/USD rallied after testing the bullish 20-day SMA at $4,343, showing very positive underlying trend. The 20-day SMA serves as a significant support area. Its upward movement contributes to the general bullish trend surrounding the precious metal.
From a momentum perspective, the Momentum indicator has moved above its midpoint, suggesting a strong bullish trend for XAU/USD. This growing bullish momentum is in line with the buying interest that’s been building among traders. At the same time, the Relative Strength Index (RSI) has pigeonholed indicators into cautious territory, with the RSI now sitting around 63 – within spitting distance of overbought levels. Even though the RSI is mildly down sloping, it’s overall bullish. It now artificially tracks north around 60, which corresponds well to the even steeper gold price uptrend.
Geopolitical tensions continue to grow, particularly due to the US involvement in Venezuela. Consequently, demand for safe-haven assets such as gold have surged. This newly created demand has added to the already bullish factors surrounding XAU/USD. That positive support for the bright metal was seen throughout the first half of today’s session, given a boost by recent geopolitical concerns. Its wins only continued to amass as weary US economic performance kept investors down.
Daily chart analysis explains that the recent XAU/USD bounce came after retesting its daily 20-day SMA. Supporting the wider technical backdrop is the 200-period SMA, which is presently moving higher at $4,267. This is just one long-term indicator, but it supports the widespread bullish sentiment in the market. Both the 20-period and 100-period simple moving averages (SMAs) have made bullish crossovers. They are currently well situated in the vicinity of that $4,370 ceiling, doubling the bullish argument for upward breakout momentum.
That’s all encouraging news, but the potential for volatility remains. Stay tuned, as XAU/USD will continue to wade through mixed economic fundamentals and monetary policy. Similarly, XAU/USD has had the favorable tailwind of overall US dollar weakness propelling it higher. In an environment where traders are responding to headline grabbing economic data releases and changing geopolitical events, price movements could be even more volatile.