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Head and Shoulders Invalidated on XAUUSD as Gold Price Rises on Coronavirus Fears

Gold prices
Gold prices

With the coronavirus now spreading to over 17 countries, investors have switched to risk-off mode. Gold price skyrocketed in response to risk aversion. XAUUSD rallied to an intraday high of $1,567.81 from a low of $1,551.80.

Yesterday, news of Hong Kong recording its first case of the coronavirus infection spooked markets because this happened after the travel ban on Wuhan. Today, it was reported that aside from Wuhan, 9 other Chinese cities (among them are Huanggang, Ezhou, Chibi, Xiantao, Zhijiang, Qianjiang) will have limited travel despite it being the Chinese New Year this weekend. There have been 830 confirmed cases of the infection now, up from just 136 on Sunday last week.

Aside from the threat to human life posed by the coronavirus, investors are also concerned about its negative effects on businesses. Yesterday, I reported that Asian stocks in the retail and entertainment industries in the region were already sustaining losses. On the other hand, gold price benefits from these worries because its credibility as a safe haven asset is highlighted.

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Gold Price Outlook

On the 1-hour time frame, we can see that the head and shoulders pattern I pointed out yesterday was invalidated. Gold price found support at the neckline and went higher than the second shoulder which was at $1,563.65. As of this writing, XAUUSD has pulled back some of its gains to the 50% Fib level (drawing the Fibonacci retracement tool from yesterday’s low to its intraday high). This price, $1,561.00 also coincides with a previous high. There are already reversal candles which could indicate that buyers are priming to push gold price higher. Near-term resistance is at yesterday’s high at $1,567.85. If that ceiling does not hold, the next resistance could be at $1,579.00 where XAUUSD topped on January 6.

On the other hand, a bearish close below today’s Asian session low at $1,559.46 may indicate the XAUUSD could soon fall to the trend line at $1,553.00.