Gold Slides to Support Levels as Markets Continue to Look for Direction

Gold Slides to Support Levels as Markets Continue to Look for Direction

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Key Takeaways

• Declining Gold prices amid vaccine news
• The economic rebound may hinder central banks’ purchasing power

Gold price is now hovering around the $1,865 level as market uncertainty prevails and traders and investors are easing into the prospect of a materialized Covid-19 vaccine. The price of Gold is on the decline this week as Monday levels pointed to a weekly open of $1,898. Slowly price has drifted to yesterday’s low of $1,852 per ounce.

The recent bottom has been acting as a support level for the precious metal over the last 30 days. On Oct 24, Gold made a low of $1,848 after which it posted a five-week high at $1,965 followed by a steep drop of $115 on the Pfizer vaccine news. Since then, Gold bugs have been struggling to create a renewed buying momentum and the rally has been put on hold.

In the medium term, Gold has been trading some 10% lower since its peak in early August when the price spiked above $2000 and reached an all-time high of $2,074 a troy ounce. Confidence in the yellow metal seems to have subsided as recent developments indicate that the vaccine may be available. Some bulls, however, have preserved their sentiment as they point to a possible rise in inflation as a possible boost for Gold. As Gold is seen as a common hedge against global market uncertainty, in a positive scenario for the global economy, one where we see a gradual and sustained recovery, the safe-haven allure found in Gold could be bound to become less appealing.

Gold Sees Solid Uptrend Over Two Year Period

Research data shows that the recent sell-off in Gold has been aided by outflows from gold-backed exchange-traded funds (ETFs), which were a significant contributor to the surge in Gold’s price for the first half of 2020.

If the market is set for an economic rebound, central banks which are generally seen as Gold buyers, may not be able to provide the needed purchasing power to keep the prices afloat. Central banks became net sellers of Gold in August for the first time in 10 years, according to the World Gold Council.

For the last two years, Gold has been in a solid uptrend, marking an increase of 70% from $1,220 to the all-time high in August. The recent sell-off has put the precious metal into a consolidation with prices trading in the range of $1,850 to $1,950.

Similarly, Silver also posts a decline as investors have rotated to equities over the past three months. Silver prices have been depreciating since August when Silver traded at a seven-year high of $29.83. Silver is now trading at $24.16 and has been in a consolidation gravitating between $23 to $25.

As Gold and Silver prices enjoyed buying momentum for most of 2020, the US dollar has marked a significant depreciation against its counterparts. The EURUSD exchange rate has gone up 13% since the pandemic lows in March until August. In the fourth quarter, the pair has entered into range-bound trading between 1.16 to 1.19. Similarly, USDCAD, USDCHF, and USDJPY have depreciated by 11.80%, 9.18%, and 7.72% respectively.

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