Gold Prices
The Gold price suffered heavy losses Sunday, dropping almost $100 in a matter of minutes. Can XAUUSD recover from the bloodbath?
Spot Gold is trading at $1,721, lower by $42 (-2.40%)
Frenzied selling on Sunday night sent the price of gold to a four-month low of $1,679, almost $100 below Friday’s close.
Aside from the technical break below $1,750, there appeared to be no immediate catalyst for the sudden plunge. Worryingly for the bulls, at the low, the gold price had lost $125 since Friday’s high and almost $240 since the start of June.
Although the price has stabilised in the last couple of hours and is attempting to form a base above $1,700, investors will be keen to know the catalyst for the $4 billion of selling.
Several factors are playing a part in XAUUSD’s sudden weakness. The most pressing is a relatively firmer US Dollar on the back of last week’s Nonfarm Payrolls and decline in the unemployment rate.
Furthermore, the greenback is seeing some safe-haven flows due to the recent uptick in COVID infection rates.
As a result, the US Dollar index has forged higher over the last few days and, at 92.88, may soon be testing the July 93.20 high. Additionally, the 10-year US treasury yield has surged to 1.306, a gain of more than 15% from Wednesday’s 1.127 low,
Should yields see a bid this week, the dollar should continue to firm, exerting downside pressure on the gold price.
However, considering the magnitude of the 2-day collapse, bears may be reluctant to chase this slide lower.
The daily chart shows the gold price bounced at the $1,676 double bottom from March.
This should be considered an essential area of support. If it fails, gold could succumb to another phase of liquidation. Below $1,676, the next significant support is not seen until $1,450, around $15% below the current price.
Furthermore, the price is far below the 50, 100 and 200-day moving averages, which are all above $1,800. Not to mention, the 50-day at $1,815 has completed a bearish death cross and is below the 200-day at $1,817.25
However, the meltdown has forced the Relative Strength Index deep into oversold territory. The gauge got as low a 7.99 at one stage this morning. Although the RSI has bounced to 24.40, this is still considered a low reading.
The technical outlook remains negative as long as the price remains below $1,750-1,760.
For more market insights, follow Elliott on Twitter.