3 Reasons Gold’s Meteoric Rally is Suddenly Losing its Dazzle
August 21, 2020 @ 13:17 +03:00
The price of gold has declined by more than 6% since it peaked at $2,075 on August 6. Analysts attribute the fading momentum of gold to the recovery of the U.S. dollar. Three factors appear to be leading the sentiment around gold to change. The catalysts for a further downtrend are the rising dollar, fund managers turning cautious, and the sharp rejection of the precious metal.
Factor #1: The Unexpected Recovery of the U.S. Dollar
On August 19, the dollar started to rebound after Fed meeting minutes. The U.S. Dollar Index (DXY) fell by nearly 10% since its March high, from $102.94 to as low as $92.13. As the dollar started to stabilize at a vital support area, the price of gold began to decline. Following its initial 7% recovery from $1,862 to $2,015, gold recorded another steep rejection. In the last 72 hours, the precious metal fell by around 3.5%.
Factor #2: Fund Managers Turn Cautious Against Gold
For most of August, investors were generally optimistic around gold. Hedge funds were shorting the dollar, and Warren Buffett-led Berkshire Hathaway built a position around the precious metal. Fund managers remain positive about gold in the medium to long term. A low-interest rate, concerns about inflation, and global economic uncertainty provide a favorable macro backdrop for gold.
Factor #3: Sharp Technical Rejection
After the first rejection at $2,085 on August 6, gold steeply rejected a second attempt at a rally. Technical analysts describe consecutive rejections where the second rejection occurs at a point lower than before as a lower-high pattern. When a lower-high formation emerges at a higher-timeframe, like the daily chart of gold, it suggests declining momentum in the near-term. The precious metal has climbed so rapidly since May that it has not established clear support levels. The sudden rejection of the vertical rally put together with the fear of missing out (FOMO)-like sentiment, raises the chances of consolidation.
3 Reasons Gold’s Meteoric Rally is Suddenly Losing its Dazzle, CCN, Aug 21