Gold price fell in yesterday’s trading as Federal Reserve Chairman Jerome Powell expressed his optimism for the US economy amid the coronavirus outbreak. After opening at $1,571.64, XAUUSD traded higher to an intraday high at $1,573.86 before sharply selling off during the New York session. By the end of the day, the precious metal had settled at $1,567.47.
In his testimony to Congress, Powell said that the US economy is in a “very good place.” He highlighted that household spending is driven by strong fundamentals and said that the central bank does not see any reason why growth should not continue. Meanwhile, he acknowledged that the coronavirus outbreak will likely impact the Chinese economy, its neighboring economies, and trading partners. He said that it may also affect the US but it is too early to say by how much.
Market participants took this as a sign that Powell is not at all worried about the coronavirus. The number of cases in the US is still low and China has taken bold measures in an effort to contain its spread. Consequently, his remarks sparked risk appetite. This explains why the dollar lost ground against higher-yielding currencies like the Aussie and Kiwi but gained against gold.
Read our Best Trading Ideas for 2020.
Gold Price Outlook
On the 4-hour time frame, we can see that the uptrend on gold price is still intact. By connecting the lows of January 14 and February 5, we can see that there is trend line support around $1,557.20. This price also seems to coincide with the 200 SMA.
Gold price chart, 4-hour
However, a closer look at the hourly time frame shows that XAUUSD has made a lower high after a series of higher highs. Consequently, a head and shoulders chart pattern has formed. In forex trading, this is considered as a bearish reversal pattern. A close below neckline support at $1,562.75 could indicate that gold price may soon fall to support at the rising trend line. On the other hand, if XAUUSD rallies above yesterday’s highs around $1,573.86, the head and shoulders pattern will be invalidated. Instead, it would indicate a potential bullish run on XAUUSD. The next near-term resistance will be at its February 3 highs at $1,592.69.