Will the gold market pull back from the rally soon?
We can see a reversal pattern that is likely to unfold on the 4-hour chart.
At this time, precious metals still float above the neckline support. How much do you think XAU/USD will drop if it collapses?
After several failed attempts to break out of the $2,040 resistance zone, gold has returned to test the double top neckline at $1,960.
A break below this support zone could send the precious metal as high as the chart formation, or down around $80.
The moving averages seem to favor the downside as the gap between the indicators has narrowed enough to indicate a possible bearish crossover. At the same time, XAU/USD is trading below both SMAs, so they are likely to hold as dynamic resistance levels.
The Stochastic has some room to fall before reflecting oversold conditions and seller fatigue.
However, if the oscillator starts to move higher, the gold bug could come back and rally again to the spotlight area near $2,000.
Keep an eye out for updates on the US debt ceiling negotiations as they seem to influence recent dollar price action and overall market sentiment.
Any signs of resolution could persuade dollar bulls to charge in, while more signs of disagreement could underscore gold’s appeal as a safe haven.