Any true correction that many traders expected could come and go, with market participants buying every reasonable dump in prices. One-day decline of $ 117 from last week seems to be the definitive cap on a shallow correction, resulting in gold withdrawal of about 23% before support was found.
After trading at the new all-time high of $ 2089 on Friday, August 7, market participants moved prices lower with the most active December 2020 futures contract closing at $ 2028. Although on Monday gold traded to a lower high, it had a slightly higher low setting of Tuesday the dramatic fall of grace.
On Tuesday, August 11, gold futures opened at $ 2037 and then traded to an intraday low of $ 1912 before closing and closing at $ 1946, resulting in a decline of nearly $ 100. The next day, gold would trade to an intraday low of $ 100. $ 1875. It seemed that this price point drew a stream of market participants who gave the precious yellow metal higher, which resulted in gold closing at $ 1948, which was just above Tuesday’s closing price.
As we talked about last week, the dramatic selloff that occurred on Tuesday presented a unique opportunity for traders to once again offer gold prices higher. It could re-position the traders who took profits from the long side. More importantly, it gave some market participants a second chance to rebalance their portfolios with a heavier weight in gold after missing the recent dynamic run to a new record high in time.
To put it bluntly, the fundamental factors that have moved gold and silver prices dramatically higher are still in play. The speed at which we saw prices recover confirms the assumption by many analysts, including myself, that what we witnessed last week was simply taking profit with no major change in the fundamental rationale that is at the heart of this rally.
The global pandemic is still destroying countries. According to the John Hopkins University & Medicine Coronavirus Resource Center worldwide, there are now 21,761,813 people who have contracted the virus. Although the death toll seems to be leveling at worldwide deaths now stand at just over three-quarters of a million (776,751) lost souls.
The pandemic has forced the Federal Reserve, along with other central banks, to pursue an extremely accommodative monetary policy with interest rates close to zero and at the same time with quantitative easing as the primary tool to support economies worldwide.
Actions by the Federal Reserve are in combination with aid funded by the United States Treasury Department which is now more than $ 3 trillion. This does not include any additional help currently needed. While Congress cannot break the state and effectively agree on the next aid package, it recognizes that without millions the millions of unemployed people in the United States will have to endure more financial difficulties.
These factors are at the root of the recent strong decline in the US dollar, and a primary factor that has moved gold prices higher. Currently, we have low resistance at $ 2000 per ounce, with resistance at $ 2040, and high resistance at $ 2080. Our technical studies indicate that gold will again challenge and overtake $ 2000 per ounce and could easily trade after a new record high in the next two months.
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I wish you, as always, good trade and good health,
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither does Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept any liability for loss and / or damage resulting from the use of this publication.
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