Gold price sees bearish engulfing pattern as RSI signals overbought conditions
Gold (XAU/USD) has witnessed a major setback this week, halting a four-day winning streak on Monday, January 14. The precious metal dropped by over 1%, retracing from its recent gains after encountering technical resistance and external pressures.
With price action now trading at $2,670 per ounce, gold’s near-term outlook appears uncertain, as investors weigh the impact of higher U.S. interest rates and upcoming geopolitical events.
Gold’s recent uptrend had been fueled by increasing uncertainty surrounding President-elect Donald Trump’s policies ahead of his return to the White House. This safe-haven demand pushed gold to highs near $2,700 per ounce last week. However, resistance emerged at the 0.786 Fibonacci retracement level, capping the rally. The situation was further compounded by an overbought Relative Strength Index (RSI) on the 4-hour chart, which signaled the potential for a pullback.
Gold price dynamics (November 2024-January 2025). Source: TradingView.
Gold short-term outlook clouded by Fed rate hikes
Monday’s price action confirmed this, as a bearish engulfing pattern formed on the chart, suggesting that gold’s rally may be losing steam. Following the price dip, RSI broke below its upward trendline as it shifted to bearish territory. With profit-taking in full swing, traders are re-evaluating their positions, especially after the strong U.S. Nonfarm Payrolls (NFP) report further solidified the Federal Reserve’s commitment to keeping interest rates higher for longer. This creates headwinds for gold, as higher borrowing costs make the non-yielding metal less attractive to investors.
Looking ahead, gold’s immediate support is found at the $2,650 level, where the 50% Fibonacci retracement aligns with the 100-day Exponential Moving Average (EMA). If this level holds, gold may see a rebound, but if it breaks, further downside risk could open up, potentially testing lower levels. While the precious metal remains a key safe-haven asset in the face of political uncertainty, the near-term outlook suggests that price corrections may continue, particularly as the Fed’s monetary policy stance pressures non-interest-bearing assets.
Director of Metals Trading at High Ridge Futures says the gold rally was fueled by uncertainty of the U.S. presidential inauguration. Gold rose by 2.5% reaching a four-week high last week.
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