Gold Price Forecast: XAU/EUR retreats from new yearly highs around €1,650, hovers around €1,640

• XAU/EUR’s nine-day rally has gained almost 9% in the last couple of weeks.
• XAU/EUR: Fed and ECB monetary policy divergence could benefit gold against euro traders, as ECB interest rates are below zero.
• XAU/EUR: RSI’s in overbought conditions could spur a correction towards €1,604 before resuming an upward move.

Gold (XAU/EUR) extends its rally to nine days in a row gaining against the EUR, up 0.11% during the day, trading at €1,642 at the time of writing. The nine-day rally accumulated gains of almost 9% and showed no signs of pausing, as long as the European Central Bank (ECB) sticks to its dovish posture. 

In the Asian session, gold dipped as low as €1,637, but bounced off the lows, reaching a new year-to-date high at 1651, then retreated some to stabilize around €1,641. Furthermore, the German 10-year bund yield is flat at -0.245%.

Fed and ECB monetary policy divergence offers gold traders another hedge option in the XAU/EUR

From the central bank divergence point of view, between the Fed and the ECB, gold against the euro offers some attractive inflation hedge options. 

In the US, the Federal Reserve just began its bond taper to its pandemic-stimulus package, contrary to the ECB, which stills in the QE, pushing back the possibility of a hike rate in the near term. Further, recent Fed policymakers have turned to a more slight neutral-hawkish posture, something that market participants have noticed, as money markets futures have priced in a July 2022 rate hike by the Federal Reserve. The consequence of that is that higher US bond yields usually benefit the greenback, thus weakening gold.

Contrarily, the ECB dovish posture weighed on the EUR/USD pair, which has fallen almost 2.50%, in the last couple of weeks, printing new year-to-date lows. XAU/EUR has followed the EUR/USD footsteps, as gold against the euro has reached new year-to-date highs during the previous five trading days.

That said, and with the ECB interest rates below zero, XAU/EUR could be an interest option to trade.

XAU/EUR Price Forecast: Technical outlook

On Monday, XAU/EUR broke above Andrew Pitchfork’s top-trendline indicator, which prompted an upside move to €1,651, which was rejected. At press time, gold is testing Monday’s close around €1,640, which seems to be forming a gravestone doji, meaning that the fight between bulls and bears is at equilibrium. Further, the Relative Strength Index (RSI) is at 78, well inside the overbought territory, suggesting exhaustion in the upward move, which could trigger a correction before resuming the uptrend.

In that outcome, the first demand area would be November 13, 2020, high at €1,604.