Gold price gapped over $9 over the weekend as risk aversion dominated the start of this week’s trading. XAUUSD opened at $1,579.82 and soon after rallied to $,1588.45. As of this writing, gold price has steadied just above $1,579.00.
Iraq Attacks Over the Weekend
Yesterday, multiple rockets hit Baghdad’s Green Zone. This fortified area houses US mililtary troops and the US embassy. Three rockets hit the embassy and wounded at least one person. No one has yet claimed responsibility for the attack. However, US officials have been blaming Iran-backed militia for the assault, following the death of Iranian General Soleimani. Consequently, heightened tensions in the Middle East sparked risk aversion and highlighted gold’s safe haven reputation.
Coronavirus Continues to Spread
Worrying news about the novel coronavirus also did not help ease the negative market sentiment and only fueled demand for gold. The virus has now been confirmed in 13 countries outside of China. There have been 2,800 recorded cases and 80 people have died from it. China has already stepped up its efforts to contain the disease. Aside from putting a travel ban on 9 cities, including the epicenter Wuhan, the government cancelled all mass celebrations for the Lunar New Year.
Fears of the coronavirus have also turned into protests in Hong Kong. This was after the city-state announced that it would turn a building in Fanling (near the Chinese border) into a temporary quarantine center. The US and Australia are also reportedly looking for ways to get their citizens out of China as the outbreak worsens.
On the hourly time frame, we can see that gold price has retraced some of its gains to the 23.6% Fib level (drawing the Fibonacci retracement tool from the low of January 24 to today’s high). Reversal candlesticks around this area may mean that gold price could soon re-test today’s high at $1,558.45. However, if risk aversion eases, we could see XAUUSD trade lower to fill the gap around $1,572.50. It may even trade to the 61.8% Fib level around $1,568.00 and re-test its previous highs. Reversal candles around this price may then suggest that the rally in gold will continue. However, a strong bearish close below this price could indicate that XAUUSD could still drop to $1,558.00. This support level coincides with Friday’s low, 100 SMA, and 200 SMA.