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Heads up, gold bugs!

The precious metal might be in for another leg higher, as a double bottom is forming on its 4-hour chart.

Will gold still act as a hedge against inflation?

Gold (XAU/USD): 4-hour

Gold (XAU/USD) 4-hour Chart

Gold (XAU/USD) 4-hour Chart

The U.S. economy will be releasing a bunch of inflation reports this week, and we’re about to see if gold still serves as a hedge against price pressures.

You see, demand for the shiny metal tends to rise when the purchasing power of money declines (i.e. inflation rises) since investors believe that gold can better retain its value.

If the U.S. CPI and PPI readings turn out much stronger than expected, then we might just see another pop higher for gold prices.

On its 4-hour time frame, XAU/USD has formed a double bottom pattern and looks ready to test the neckline at $1,730. A break higher could set off a rally that’s the same height as the chart formation.

Technical indicators are hinting at a continuation of the decline, though, as the 100 SMA is below the 200 SMA while Stochastic is reflecting overbought conditions. At the same time, the 100 SMA appears to be holding as dynamic resistance.

In that case, gold might still slump back to the lows around $1,690-1,700, especially if U.S. inflation reports disappoint.

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