Gold Price Heads For Biggest Weekly Drop, But Here’s A Bull Case For Gold
Gold prices have seen a tremendous selloff this week, and the precious metal is set to record its biggest weekly drop in nearly six weeks. Most of the gold price selloff is primarily down to the strength in the dollar index that we have seen this week.
However, the question is, where do we go from here in terms of the gold price, especially given the fact that the U.S. stock market is showing signs of weakness.
Is Gold Price Moving Up or Down?
Gold is up nearly 22% year-to-date. Currently, it is trading at $1,857 per ounce. However, the gold price is down approximately 10% from its all-time high, $2,075, which was formed on August 8. Ever since then, the yellow metal has been trading lower, and it has failed to gather any momentum, despite the fact that the U.S. stock market is set to post its fourth consecutive week of losses.
Is Gold No Longer a Safe Haven?
Gold usually acts as a safe haven. When investors and traders are not comfortable holding riskier assets, they will usually hedge their positions by buying the shiny metal, gold.
However, we did not see gold acting as a safe haven when the coronavirus stock market crash happened, as literally every single asset came under an intense selloff. That was because traders had to sell some of their gold positions to buy themselves a safety net. This protected them from margin calls—this usually happens when traders trade on leverage, and they do not have sufficient equity to cover their losses.
Nonetheless, the question remains, why are we not seeing the gold price rushing ever upwards when the stock market has now seen four weeks of consecutive losses? The reason is that investors aren’t fully satisfied with the notion that the Fed is going to keep the interest rate lower for three years, as some of the Fed’s committee members believe that the interest rate can go higher before the Fed reaches its inflation target.
In simple terms, the Fed’s monetary policy confusion has boosted the dollar index, and this increase in the dollar index has brought more weakness for the gold price.
Can the Gold Price Move Higher?
There may well be another bull run heading toward gold’s price.
That’s because, firstly, there is little to no chance that the Fed will become hawkish in the short to medium term when it comes to its monetary policy. This should be positive for the gold price.
Secondly, the coronavirus situation has worsened in Europe, and it is only a matter of time before we see a similar scenario playing out in the U.S. If that happens, it will adversely impact the U.S. stock market. This may increase the odds further of the gold price moving higher.
Thirdly, the high-frequency data, the everyday economic numbers that we see for the U.S. economy, have started to show a lot more weakness. For instance, today, U.S. Core Durable Goods data and yesterday’s jobless claims number were both underwhelming. Although it may be naive to pay too much attention to these numbers, it is still an important piece of information to keep our sights on.
Next, the chance for a second stimulus package, which the stock market is craving, is still slim. This should also support the gold price.
Finally, we have the U.S. elections just around the corner, and next month, it is likely that investors will seek more safety for their portfolio, and gold could be their top choice.
What Are the Important Price Levels for Gold?
Looking at the daily chart, the near-term support is at $1,800, followed by the 200-day simple moving average, which is trading near the $1,750 mark. As long as the gold price stays above these price levels, there are chances for gold to continue its bull run and retest the $1,955 price level. If the gold price breaks that level, the next resistance is likely to be near $2,013, and followed by that is the all-time high.