The yellow metal is down by over 3.5% in September so far, after ending August on a bearish note. In total, Gold drops 6.5% in the last one month (as at the time of writing) as the bearish correction lingers.
Risk is back in the markets as optimism rises. Businesses are opening and economies expanding. Despite fears of a second wave in some countries, optimism regarding vaccines has kept the resurgence alive. As a result of this, demand for safe-haven assets has plummeted and Gold then drops 6.5% in the last 30 days. After shedding over 3.7% last week, the non-yielding metal hit 1906 bottom before fighting back with a minor surge to 1940. Meanwhile, this week so far, the metal hit the 1940 top. It now remains to be seen if the bulls will build on the 1906 support to push toward 1960 before the next bearish waves.
Gold drops 6.5% as global economies recover
US August jobs data exceeded expectations. China’s manufacturing PMI hit fresh highs while her export and import activities in August recorded significant boosts. The strong bullish run in the equities market prior to September is an indication of the fast global economic recoveries. With the markets back on their feet, demand for Gold has slumped as investors now move funds to more flamboyant instruments. However, fears of the second wave of Covid-19 after a fresh resurgence in India, the UK, and Spain, has brought about major dips in the Equities. In spite of this, Gold which is a supposed beneficiary has stayed calm in the bearish territory. Since September 1, the precious metal has dropped 2% while the S&P 500 is down by 7%. There will be more to look forward to as traders and investors try to glide their ways through the market which has been more volatile since the pandemic. Gold might stay longer in the wide range it entered since the early August massive slump. Let’s take a look at the technicals.
Gold technical analysis: long term view
Gold broke above 1916 top in July and hit a fresh all-time high at 2073 to further solidify its position as the most preferred safe-haven asset. In the monthly chart above, the commodity dropped sharply below 1916 and then quickly recovered above it. The level, which was expected to provide support for more rallies might not hold for long. as it seems the metal is starting a long-term bearish correction as a result of a higher investors’ risk appetite. At the moment, the Gold market is squeezing between 1900 and 1950. Further decline to the 38.2% and 50% retracement at 1725 and 1620 respectively is very much likely if the next bearish wave drives the market below the 1916 and 1797 support levels. In the long-term, these are the key levels traders can watch for major actions. To the upside, 2073 remains the level to beat. Any bullish push will most likely be capped below it until risk-aversion is back as the major driver.
Coming down to the lower time frame, the 4H chart above indicates an emerging triangle pattern. Since the decline from 2073 to 1862, Gold has stayed range-bound and we might see it spend more time within this range until a breakout finally happens. To the upside, 1995, 2013, and 2073 are critical resistance levels while 1900 and 1862 are the support barriers before 1797.
At the intraday level, price seems to have found a bottom at 1906 with a an emerging bullish head and shoulder pattern signaling a possible surge to 1950 or higher.
As the 15min chart above shows, a break above the pattern neckline at 1942 will most probably lead to an intraday surge to 1950 and 1970 which are important levels below 1992. However, if the current dip proceeds below the 1906 low, we should then expect the bears to push to the 1900 psychological level.
Traders should more importantly watch for risk driving headlines, especially concerning the US-China trade conflict, COVID vaccines, and the second wave of the virus.
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