As shown by today’s XAU/USD chart, gold began the week on a bullish note: trading opened with a bullish gap above Friday’s high, lifting the price above the psychological $5,000 level.

The strengthening of gold has been driven by the following factors (according to media reports):

→ The US dollar, which is weakening ahead of key US economic data. The January employment report is due on Wednesday (it is expected to show signs of stabilisation in the labour market), followed by inflation data on Friday.

→ Political developments in Japan. The decisive victory of Prime Minister Sanae Takaichi has reinforced expectations of large-scale fiscal stimulus (“Sanaenomics”), which traditionally puts pressure on the yen and supports gold.

→ Demand from central banks. It has been reported that China’s central bank extended its gold purchases for the fifteenth consecutive month in January.

On 3 February, when analysing gold price fluctuations, we:

→ noted that the market was extremely oversold within the context of a long-term ascending channel;
→ suggested that a rebound from the zone of extreme oversold conditions could encounter a resistance area formed by the median of that channel and the classic Fibonacci levels (50% and 61.8%).

Indeed, on 4 February, after recovering into this area (with the formation of peak C), the market reversed lower and found support near the lower boundary of the aforementioned channel on Friday, 6 February.

Technical Analysis of the XAU/USD Chart

Price action (expanding amplitude) during the formation of low D points to aggressive demand, which may reflect the intentions of large capital.

At the same time, analysis of the market structure based on the A–B–C–D swing points suggests that, following the burst of extreme volatility at the turn of the month (highlighted by the peak in the ATR indicator), the market is searching for a new equilibrium.

It is therefore reasonable to assume that in the near term we may see a contraction in the amplitude of price fluctuations on the XAU/USD chart. It cannot be ruled out that supply and demand will find a temporary balance around the psychological $5k level.

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