Gold Price Prediction: XAU/USD Death Cross pattern emerging, what it means, levels to watch

• The 50-day SMA is about to cross below the 200-day SMA, a bearish sign.
• Fears of the Fed open the door to an increase in yields, adverse for gold.
• XAU/USD has room to gradually decline all the way to $1,752. 

When the Golden Cross pattern emerged in gold in early December, it marked the beginning of the uptrend. While XAU/USD continues trading in an upward channel since the middle of last month and up to now, the writing is on the wall for a move in the other direction.

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When the 50-day Simple Moving Average (SMA) crosses above the 200-day SMA, it is called a “Golden Cross” – a bullish pattern. It last happened on December 2 in gold, when XAU/USD was trading below $1,780. Since then, the precious metal has been on an uptrend, nearly reaching $1,850 on Thursday. 

On its way up, XAU/USD has been trading in an uptrend channel since December 15, when the Federal Reserve’s decision temporarily sent to $1,752. This near $100-dollar move may be about to end despite upside momentum and the uptrend channel. That is due to the opposite of the Golden Cross pattern – the Death Cross pattern.

The Death Cross is when the 50-day SMA crosses the 200-day SMA to the downside. As the chart shows, the 50-day SMA (blue line) is leaning lower and the 200-day SMA is edging higher. They are about to “kiss” and then cross at around $1,805 (thick black line).

The move seems inevitable and it will likely be followed by a downfall. Where to? All the way to $1,752. On the way down, there are plenty of support lines, including $1,829, $1,823, $1,810, $1,805, $1,800, $1,790, $1,785 and $1,762. 

Bulls would be emboldened if XAU/USD recaptures $1,844 and more importantly $1,850. That would open the door to $1,865 and $1,900.

Gold Fundamental Analysis

Fundamentally, gold remains at the mercy of US 10-year yields. Returns on Uncle Sam’s debt are rebounding toward 1.80%, up tumbling all the way from 1.90% to 1.75%. As gold has no yield, it competes with the safety of holding American debt. Bigger moves in yields tend to have more impact on the precious metal than slow-moving changes.

The next significant event to watch is the Federal Reserve’s decision on January 26. If the bank signals an imminent rate hike in March and potentially bond-selling later this year – withdrawing money from markets – yields would jump and gold could suffer. Conversely, if Fed Chair Jerome Powell and his colleagues send a soothing message of ongoing support to the economy, XAU/USD could avoid the kiss of the Death Cross.