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Gold Price Forms A Shooting Start At 7-Year Highs. Will It Drop Soon?

gold price
gold price

After trading to its 7-year highs yesterday, gold price gave up most of its gains and closed as a shooting star. This candlestick pattern is considered as a bearish reversal signal because it suggests that there may not be enough buyers in the market to sustain gains on XAUUSD. If sellers dominate trading in the next few days, we could see gold price drop to its previous highs around $1,592.71.

Yesterday, risk aversion dominated market sentiment. Concerns about the spike in coronavirus in South Korea and Italy triggered a flight to safety and highlighted gold’s safe haven credibility. However, it was unable to sustain its gains. Could it be a sign that gold price will soon drop?

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A closer look at the 4-hour time frame suggests that yesterday’s price action could be nothing more than just a retracement. By drawing the Fibonacci retracement tool from the low of February 20 to the high of February 24, we can see that XAUUSD is currently trading around the 38.2% Fib level. A candlestick which looks like the mirror-opposite of the candle on the daily chart has formed. This pattern, called as the hammer, suggests that there may be buyers in the market who could push gold price higher. Near-term resistance is at $1,689.14 where XAUUSD recently peaked.