Deeper correction likely for XAU/USD this week

Another week, another record high for the precious metal.

The spot price of gold (XAU/USD) refreshed all-time highs at $2,431 last week, strengthened by expectations of US rate cuts, safe-haven demand amid geopolitical tensions in the Middle East and central banks purchasing large stockpiles of gold.

However, sentiment soured on Friday, casting gold -1.2% lower and taking back a large portion of the week’s gains.

Technical outlook

Technically, limited support is evident on the weekly timeframe until as far south as $2,147. It is also worth highlighting that although the market exhibits a strong uptrend, the Relative Strength Index (RSI) on the weekly chart shows that the indicator is testing levels not seen since 2020, signifying that upside momentum could begin to cool off soon. Whether this will be enough to see gold pullback to as far as $2,147 remains to be seen.

While the daily timeframe’s RSI also shows early signs of negative divergence (in order to gain conviction here, however, traders are likely to want to see the indicator drop outside of the overbought area), support is reasonably close by at $2,280.

The RSI suggests a deeper correction to $2,280

The current signals from the RSI are unlikely to be a sign of a trend reversal. Yet, a moderate extension to the correction is certainly a possibility this week, mostly fuelled by profit-taking.

A move lower will unlikely breach bids from daily support at $2,280, which is an area buyers could look to defend as dip buyers (trend followers) attempt to enter the trend from support.