Hello, this is my second post!
In the last few weeks gold suffered a strong correction, failing to break 1700$. Leaving aside fundamental factors, after a strong rally gold formed divergences both on RSI and MACD, suggesting that a correction or a trend reversal was possible.
Signs of a recession were visible for the last few years, coronavirus acting more like a catalyst rather than the main cause for this crisis. In late 2007, due to uncertanity people moved to gold, but as it got evident that the US government as well as others couldn't contain the recession, gold was sold because:
1) Investors marked profits;
2)Gold was seen as a better and safer investment, so investors sold gold in order to raise money for their failing positions in stocks,to either buy dips or to avoid margin calls;
3)Many saw the dollar as being a refuge, companies and investors selling foreign currency and other equities from countries with poorer chances of surviving, so they bought of the market dollars that could have gone in gold;
4)People sold because they needed cash in order to be able to support possible unexpected spendings or to pay off debts.
As things settled in 2009, money moved towards a safer investment,gold outpacing the stock market, until the economy was ready for a new cycle and gold was sold to fund new operations.
Back to technical analysis, gold broke its support at 1560$, but managed to bounce off the 50 MA, gaining temporary support around 1460$.
During the 2008 correction, gold retracted and closed around 38% Fibonacci(from the bottom of the previous correction to the top of the market at that time). If we take a retracement from the bottom of the first correction of the trend that started in late 2015 to this year's top, 38% is going to fall around 1350-1370$, level that worked as strong resistance for many years, while the 100 MA that provided strong support or resistance in the past, hovering around the same value.
Regarding RSI, both now and in 2008, the indicator had 2 peaks above 80 and 70, resulting in a correction that found support at the top of the triangle formed by the last correction, while bottoming short below the 100 MA.
To finish this analysis i believe that gold will move towards 1350-1370 in the next few months.
Thank you.
In the last few weeks gold suffered a strong correction, failing to break 1700$. Leaving aside fundamental factors, after a strong rally gold formed divergences both on RSI and MACD, suggesting that a correction or a trend reversal was possible.
Signs of a recession were visible for the last few years, coronavirus acting more like a catalyst rather than the main cause for this crisis. In late 2007, due to uncertanity people moved to gold, but as it got evident that the US government as well as others couldn't contain the recession, gold was sold because:
1) Investors marked profits;
2)Gold was seen as a better and safer investment, so investors sold gold in order to raise money for their failing positions in stocks,to either buy dips or to avoid margin calls;
3)Many saw the dollar as being a refuge, companies and investors selling foreign currency and other equities from countries with poorer chances of surviving, so they bought of the market dollars that could have gone in gold;
4)People sold because they needed cash in order to be able to support possible unexpected spendings or to pay off debts.
As things settled in 2009, money moved towards a safer investment,gold outpacing the stock market, until the economy was ready for a new cycle and gold was sold to fund new operations.
Back to technical analysis, gold broke its support at 1560$, but managed to bounce off the 50 MA, gaining temporary support around 1460$.
During the 2008 correction, gold retracted and closed around 38% Fibonacci(from the bottom of the previous correction to the top of the market at that time). If we take a retracement from the bottom of the first correction of the trend that started in late 2015 to this year's top, 38% is going to fall around 1350-1370$, level that worked as strong resistance for many years, while the 100 MA that provided strong support or resistance in the past, hovering around the same value.
Regarding RSI, both now and in 2008, the indicator had 2 peaks above 80 and 70, resulting in a correction that found support at the top of the triangle formed by the last correction, while bottoming short below the 100 MA.
To finish this analysis i believe that gold will move towards 1350-1370 in the next few months.
Thank you.