Gold in Positive Territory for the Week, Consolidates Ahead of Key Data
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- Coronavirus vaccine directly related to gold’s price drop
- Gold bulls still hope for a long-term uptrend
The gold market has seen increased buying momentum this week as traders and investors attempt to continue the bullish trend that has been defining gold since mid-2018. Gold has been climbing steadily since the lows of around $1,200 in August 2018 until the inflection point was reached in August 2020. The correction move that started on August 7 this year at gold’s all-time high of $2,074 has seen the precious metal devalue to this Monday’s low of $1,764.
A few significant factors are responsible for the rather gradual drop in the price of gold for the last four months. The most important one being the discovery of the coronavirus vaccine which lifted the uncertainty from the global markets for the near and medium outlook. Secondly, the presidential shift of power in the White House brought a sigh of relief in the markets as President-elect Joe Biden is now selecting his cabinet. The choice has so far pleased investors, specifically the selection of Janet Yellen as Secretary of Treasury. As a result of the improving market climate, investors rotated to equities causing a rally in the Dow Jones and the S&P 500 which led both indexes to all-time highs.
A Renewed Momentum for Gold?
In summary, gold, which went up during the coronavirus crisis due to the uncertain market environment, was neglected by investors as soon as the skies cleared. However, what we’re seeing this week is a renewed momentum in gold’s price. Gold bulls are placing their bets in hopes that they can recover the long-term uptrend. On the other hand, the bearish correction that occurred recently is still a strong factor that could affect future price behavior. Gold remains in a correction zone as the price reached its lowest point in five months when it hit $1,764 per ounce this Monday. The move brought gold below the 200-day moving average, indicating that the asset might be going into the initial phases of a bearish market. Bullish market participants, however, were quick to jump in and save the day as gold had only one daily close below the 200SMA.
Currently, gold is trading at $1,844 per ounce, a rebound by 4.50% on the week, marking a fourth consecutive day of gains. Nevertheless, the precious metal remains in vulnerable territory as the current high is still lower than the last high of $1,966 reached on Nov 9, which is a confirmation that the asset is still in a correction zone with the potential to enter a bear market. Given the rapidly changing environment and the current unpredictable price dynamics due to tactical asset allocation, gold participants on both sides of the trade need to be cautious when positioning their trades.
Looking ahead into the day, the gold market is expected to consolidate in anticipation of the latest US economic reports. Non-farm payrolls data is expected to show that 469K new jobs were created in the American labor market in November. US unemployment data will also be released later today, expected to improve by 0.1% to 6.8%. Any significant divergence from expectations could increase the volatility in the gold market.