Gold Technical Analysis: Charts signal short-term bullish exhaustion

• Gold is looking toppy with the daily and 4-hour chart reporting buyer exhaustion. 
• The yellow metal may revisit the psychological support of $1,500.
• A close above $1,526 is needed to invalidate correction risks. 

The prospects of gold witnessing short-term correction have increased over the last two weeks. 

To start with, the yellow metal created an inverted hammer with a long upper wick on Dec. 31. That candle has appeared at three-month highs and represents buyer exhaustion and validates the overbought or above-70reading on the 14-day relative strength index (RSI). 

Further, the 4-hour chart RSI has charted lower highs or bearish divergence, contradicting higher highs on price. 

The yellow metal may fall back to the 100-day average, currently at $1,513. Acceptance below that level would expose the psychological support of $1,500.

The case for a pullback would weaken if prices find acceptance above $1,526, invalidating Tuesday’s inverted hammer candle. 

At press time, gold is trading at $1,519, representing a 0.15% gain on the day. Dips, if any, will likely be short-lived, as the long-term outlook is bullish. 

Daily chart

4-hour chart

Trend: Correction likely

Technical levels