Gold – XAU/USD Analysis - May 25, 2021

Symmetrical Triangle Breakout

Gold prices were closed at $1878.05 after placing a high of $1887.80 and a low of $1875.65. After rising for the previous two consecutive sessions, gold dropped on Monday and lost some of its gains from Friday despite the weak U.S. dollar on the day. The U.S. dollar remained low on Monday mainly due to declining U.S. Treasury yields. The treasury yields on the benchmark 10-year note continued their bearish streak for the 4th consecutive session and dropped to 1.596% on Monday that added pressure on the greenback and made it weak against the basket of six major currencies, and dragged DXY to 89.76 for the day.

Despite the declining U.S. dollar and the treasury yields, gold remained under pressure on Monday as investors weighed comments by Federal Reserve officials seeking to soothe concerns about inflation. The Fed Governor Lael Brainard and Atlanta Fed President Raphael Bostic said they would not be surprised to see bottlenecks and supple shortages push prices up in the coming months as the pandemic was getting away and the pent-up demand was rising unleashed. However, the fed officials believed that much of those price gains were likely temporary and will fade eventually with the recovery in the economy.

The talks from Fed that inflation in the U.S. will be transitory proved to be beneficial for gold as it helped sustain bullish momentum in precious metals for the short term. Gold is facing continuous resistance at the $1900 level, and a favorable event will be needed to break this resistance level. It seems like gold is moving closer to erase this year’s decline as investors turn more bullish on the yellow metal. Meanwhile, the market-based measures of inflation expectations also declined, and traders remained cautious about price pressures along with the rising number of coronavirus cases in some parts of the world.

Furthermore, another reason behind the declining prices of gold on Monday could be the comments from Fed officials in support of digital currencies. On Monday, the Fed Governor Lael Brainard said that the Fed was stepping up its research and other efforts to explore the potential development of a digital version of the U.S. dollar. This came when more consumers were using digital payments, and other governments were pushing forward with their digital currencies. The Atlanta Federal Reserve President Raphael Bostic also said that the rapid development of cryptocurrency and digital finance was an area that cannot be ignored. He also pointed to volatility in technologies like bitcoin and their shortcomings as a substitute for traditional currencies like the dollar.

Gold Intraday Technical Level

Support Resistance

1873.20 1885.35

1868.35 1892.65

1861.05 1897.50

Pivot Point: 1880.50

Gold - XAU/USD - Technical Outlook

Gold has suddenly taken a bullish move, as it’s trading at 1,885 level now. On the 4-hour timeframe, gold has formed a symmetrical triangle pattern that supports a solid bullish bias in gold. On the higher side, gold is facing strong resistance at 1,886, and violation of this exposes the metal towards the next resistance level of 1,892 and 1,898. At the same time, the metal’s support stays at 1,879 and 1,873. A bearish breakout of these support levels opens up room for gold to trade towards the next support area of 1,861. All the best!