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Gold Prices Hit 7-Week Highs Despite the Pick Up in Risk Appetite

Gold prices
Gold prices

Gold prices rallied to their multi-week highs yesterday’s trading as investors square their positions on the US dollar before 2019 comes to an end. XAUUSD opened at $1,498.99 and steadily traded higher to finish the day at $1,510.76.

China Confirms Phase One Deal with the US

For the first time since the phase one deal was announced, China acknowledged the agreement yesterday. Gao Feng, who is the spokesperson for the Ministry of Commerce, announced that there is continuing progress with the deal. According to him, they are in the process of reviewing the legal terms, translating, and proofreading the initial agreement. There are also speculations that China is preparing for a ceremony when the deal is ready to be signed.

Investors Taking Profit Ahead of 2020?

As expected, this news sparked risk appetite. What was unexpected, however, was the reaction of gold. XAUUSD tends to trade lower on positive market sentiment as demand for the safe haven asset declines. Instead, gold prices trade higher on risk aversion or when investors feel worried about the global economy. A possible explanation for the market’s reaction in yesterday’s trading could be that investors are squaring their short XAUUSD positions before the year comes to a close.

Read our Best Trading Ideas for 2020.

Gold Price Outlook

On the daily time frame, we can see that XAUUSD has finally broken out of its consolidation. In fact, gold prices have broken through resistance at the falling trend line from connecting the lower highs of September 4, November 4, and December 12. XAUUSD is currently testing resistance at its November 1 highs at $1,515,20. A bullish close above this level will mean that the next resistance is at its September 25 highs at $1,535.78.

On the other hand, if resistance holds, we could see XAUUSD retrace some of its gains back to the area around the 61.8% Fib level (when you draw the Fibonacci retracement tool from the low of December 6 to today’s Asian session highs). This price, around $1,480.00, also coincides with the previous falling trend line which may offer support in the future.