Gold has rallied by more than $300 per ounce over the last 10 weeks with only a brief period of consolidation around $1,800. Now, gold is tentatively holding above $1,900, after reaching $1,929 in yesterday’s trade, before closing the day slightly lower. 

On the Hourly chart we are witnessing a period of consolidation. The hourly chart also provides a clear example of the gold price continually butting up against $1,900 before breaking through, re-testing the level from above and below, before a more emphatic break to the upside. This is the kind of price action that can be used to bolster the case for physiological levels playing an important role in technical analysis.

The reason I described gold holding above $1,900 as tentative is because the RSI is indicating that gold is still in extreme overbought conditions (above 70.00) on the daily, and right in the middle on the hourly (50.00). 

However, some traders may be looking for further upside and for gold to test the $2,000, unless the US Federal Reserve looks to hike interest rates by 50-basis-points at its next meeting at the end of this month. On the side of the bulls, with the data released last Thursday, we learned that US annual inflation fell to 6.5% in December to its lowest level in more than a year, declining for a sixth straight month. Even though most of the market is expecting a 25-basis-points hike at the Feds next meeting (Jan 31 – Feb 1), a 50-basis-point rate hike is still on the table, as noted by several Fed presidents.