The price of gold rose on Wednesday, hitting its highest level since August 2016. The move was triggered by the U.S. dollar plunging to three-year lows, after comments by U.S. Treasury secretary Steven Mnuchin in Davos that he welcomed a weaker currency. If the dollar continues to stay weak and inflation trends upwards then gold could climb further. Furthermore, there are also concerns about a potential trade war which is stirring up some risk-aversion trades.
On the weekly chart, XAUUSD is now approaching a critical level as the neckline of an inverted head and shoulders pattern is being tested. This area also represents the 38.2% Fibonacci retracement of the entire move from the highs of 2011 to the lows of 2015. A confirmed break of the neckline at 1375-78 in this timeframe would point to a long-term target of 1732. It remains to be seen if USD will weaken sufficiently to push gold into a breakout.
In the daily timeframe, a retracement through 1355 would likely see a corrective move to the next major support at 1344. On the upside, the 1365 area might now act as an immediate resistance, above which gold is likely to test the July 2016 high’s resistance near the 1375-78 region.