Gold prices
Gold price hold the headlines during the COVID-19 pandemic. It reached above the $2,000 level, a new all-time high for the yellow metal. But holding above $2,000 is difficult, as so far it met only sellers.
Not only that it cannot stay above $2,000, but it formed two bearish patterns – two consecutive head and shoulders. It is currently struggling to complete the right shoulder in the second pattern, one with bigger implications for future market developments.
Investing demand for gold keeps rising and now represents a key driver in the gold price. The recent advances are justified by the increasing ETF’s share in global gold demand, reaching 40% in 2020 vs. only 6% a year ago.
The USD has its role in gold price’s rise. Viewed as an anti-dollar alternative investment, gold offers protection against inflation, something investors fear after the M2 money supply in the United States reached astronomical levels in 2020. To put things into context, lumber inflation +14.4% last week, to +61.9% in the last month. Also, natural gas inflated +42.8% in the last month, up +3.9% only last week.
This is a simplistic approach to charting gold, but it reflects the difficulties it has to hold at current levels. It looks for direction at $2,000, while many investment houses lifted their forecast for gold price to beyond $3,000.
The head and shoulders is a classic technical analysis pattern that has a measured move. By measuring the distance from the highest point in the head to the neckline and projecting it lower, the measured move stands for the minimum distance that the market should travel.
While the measured move belonging to the first pattern was completed, the price still holds above the second head and shoulders’ neckline. A move lower will open the gates to a decline below $1,800, and traders need a stop at $2,000.
