Market Overview

Gold confirms the bearish scenario

Gold lost ground for the third day in a row, retreating to $1785 an ounce after another failed attempt to break above $1800. Such dynamics of the precious metal runs counter to rising demand for many commodities, which indicates bearish pressure.

Gold bulls failed to return the metal to an upward trend, as evidenced by the technical picture. An unsuccessful attempt to break above $1800 paves the way for declines in the $1500-1600 area, where gold might be by the middle of next year.

Gold made its third unsuccessful attempt to break above its 200 SMA early week, and now the bears are increasing the pressure in the critical technical area.

$1790 passes the 50-day moving average that acts as a signal line for the medium-term trend. The price staying under this line indicates bearish dominance.

Around $1800, the uptrend’s support line is located, which now has more and more signs of resistance, preventing the gold price from going higher.

Fundamentally, the current macroeconomic cycle is also not favourable for gold purchases. The current situation is comparable to late 2012/early 2013 when global central banks reduced their economic support.

Things are moving much faster now: between the cyclical highs and lows, it has been five rather than ten years, and the QE-induced price spike lasted five months rather than 35 as after the global financial crisis.

The correction of gold from the 2011 peaks to the bottom at the end of 2014 took about 50% of the rally. A proportionate correction creates the potential for a drop to $1560, zeroing out all the gains from April to August 2020.

Since this time, we see a much faster economic and monetary policy response with stimulus. The above correction could shrink from 3 years after the upward trend break to 2-3 quarters, i.e., reach the bottom in the first or second quarters of 2022.

The FxPro Analyst Team

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