Gold: Correction in sight after reaching nine-year highs

Gold (XAU/USD) built on the recent upsurge and refreshed nine-year highs at $1866.90 earlier on Wednesday and is now trading just below the $1860 mark. Nonetheless, rising wedge hurdle and overbought RSI on daily chart signal caution, FXStreet’s Dhwani Mehta reports.

Key quotes

“Gold, further, tracked the rally in Silver, which recorded fresh seven-year highs just shy of the 23 level. In the day ahead, the precious metal could see a brief consolidative phase, as the bulls take a breather after the fourth straight day of gains. Moreover, any disappointment in the US housing data and worrisome COVID-19 stats could weigh on the broader market sentiment and propel a dollar comeback. In such a case, gold could risk a correction before it resumes its uptrend towards the record high of $1920.”

“The daily chart of gold signals caution, as the price nears the four-month-long rising wedge resistance at $1869. Meanwhile, the daily Relative Strength Index (RSI) has entered the overbought territory for the first time since end-February, which could ring an alarm to the buyers. Therefore, the bright metal risks a corrective move lower from a technical perspective while investors may resort to profit-taking after the robust rise.”

“The price could reverse towards last week’s strong resistance zone around $1818-20 level in the near-term should it fail to resist above the intraday low of $1840.66.The next support awaits at $1803.87, which is the critical rising wedge support. A break below the latter will validate the formation and call for a reversal in the ongoing bullish trend.”

“However, if the gold buyers defy the warnings then $1880 could be put to test following a break above the rising wedge hurdle.”