Gold Prices Pullback from 6-year Highs as Risk Aversion Eases

Gold prices steadily traded lower yesterday after surging to their 6-year highs at $1,587.83. XAUUSD finished the New York session at $1,65.44. In today’s Asian session, the precious metal slid even lower to $1,555.14 and effectively filled the weekend gap.

Risk Aversion Eases But Investors Remain Cautious

The rally in gold prices were fueled by risk aversion sparked by concerns in the ongoing conflict between the US and Iran. Remember that on Friday, the US launched an air strike in Baghdad that killed Iranian General Soleimani. Iran has then vowed to retaliate. However, the lack of updates from both countries yesterday somehow eased risk aversion. This, in turn, caused the pull back in gold prices.

Be warned, however, that tensions remain in the Middle East. There has been talk about Iran targeting US bases in its retaliation. Should violence ensue, we could see gold prices resume their rally. There’s also a saying in forex trading which cites that all gaps get filled. This could mean that yesterday’s price action was the market’s way of allowing buyers to jump in on a potential rally at a better price.

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Gold Price Outlook

On the hourly time frame, we can see that XAUUSD is currently testing support at the rising trend line (from connecting the lows of January 2). This price around $1,560.00 also coincides with the area between the 38.2% and 50% Fib levels when you draw the Fibonacci retracement tool from the low of January 2 to the high of January 6. A bullish candlestick could confirm that buyers are getting ready for another shot at gold’s six-year highs at $1,587.83. On the other hand, a strong bearish close below today’s Asian session lows would invalidate the trend line. We may then see XAUUSD fall to its January 2 lows at $1,518.75 where the 200 SMA may also offer support.

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