Growing Bearish on the Gold Price

Summary:

Gold price gunning for the $2,000 round number but it failed to break above it so far. Bearish divergences suggest it might have a hard time advancing.

The gold price hit a new all-time high recently, and everyone sings the demise of the USD. The world’s reserve currency is at risk, according to many financial market participants.

As the Fed keeps printing USD, the fear is that the dollar’s role in the international financial system will be replaced in time. Gold, naturally, is an alternative.

At times when total public debt and interest payments in the United States reach sky-high levels, gold is seen as an alternative investment. Moreover, the USD outperformed only emerging markets currencies, and lost ground against almost all developed markets currencies (e.g., EUR, GBP, CHF, AUD, NZD).

While making a new all-time high, the gold price failed to take the magical round number – the $2,000 level. As it is too close to the level, it is difficult to imagine that it will not try for it. However, at this point, some bearish elements should concern bulls.

Gold Price and Correlated Markets

Gold as a commodity has long influenced commodity currencies. More precisely, it plays a crucial role in the AUDUSD evolution. The two markets enjoy a direct correction, albeit the degree of it changes over time.

Since the coronavirus crisis began in March, the direct correlations between the two markets strengthened again. The funny thing is that the AUDUSD closely follows the US equity market indices, like the S&P500. All in all, when an exogenous shock such as the COVID-19 virus hits the global economy, such correlations become the norm in interpreting financial markets correctly.

Gold Price Technical Picture

XAUUSD diverged strongly from the RSI – something usual in strong market trends. However, using the AUDUSD direct correlation, we notice a bearish divergence there too – one more appropriate, or normal, than the one seen in gold.

Moreover, the gold price was rejected at $1980 area twice so far. Investors will likely push for a break above the $2,000 level, but that would only make the divergence bigger.

Hence, aggressive traders may want to short XAUUSD for a quick move lower, using $1980-$2000 as entry, with a stop at $2100 and targeting a move back below $1750.