Gold has started to catch a bid on the metals market after Joe Biden was inaugurated as US President yesterday and got straight to action. Biden issued a number of executive orders and reversed a number of the Trump administration’s policies.
Financial markets are now factoring in that Biden means business and will soon look to push his proposed $1.9 trillion spending bill through US Congress. US 10-year yields have started to react and are ticking lower, which is putting pressure on the greenback and causing a renewed bid in gold.
Furthermore, markets are also coming to the reality that more lockdowns are set to be enforced under the Biden administration, alongside mask wearing, as opposed to President Trumps “you can’t lockdown economy” stance towards COVID-19. The is likely to keep expectations of a rate increased suppressed.
With Biden set to take affirmative action, investors are also looking at US Treasury Secretary Janey Yellen’s recent speech where she noted that “the future is likely to bring low-interest rates for a long time”.
Yellen is letting the market know that low rates and FED central bank policy action are likely to remain the norm for some time and that Biden’s new stimulus plan will be essential to getting the US economy back on track.
Gold bulls are now speculating that with coming US stimulus and low interest rates the price of gold could be set to post further gains. This is of course dependent on the US economies performance this quarter, and the Federal Reserve confirming its ongoing stance towards QE4.
From a technical perspective, gold has made a strong recovery from the $1,800 level and is approaching the pivotal $1,880 level. The $1,8800 level is important for various reasons and will be watched closely by gold traders looking for confirmation of a possible breakout or potential false recovery.
Gold Short-Term Technical Analysis
The four-hour time frame shows that gold is trapped inside a falling price channel between the $1,880 and $1,700 levels. Gold is now approaching the top of the price channel, around the $1,880 resistance level.
According to technical analysis the $1,880 level is also important because the yellow-metals 100-day moving average is also found around this level. Typically, the 100-day moving average is seen as a key benchmark of technical strength.
Source by ActivTrader
Back to the falling price channel. Typically, these patterns are considered to be bullish, however, it is still too early to predict that a
bullish breakout will take place. The possibility of a major upside rejection at the top of the channel exists.
According to the overall size of the falling price channel gold could rally by around $180 if a breakout above the $1,880 level takes place. In summary, watch out for the coming action around the top of the price channel.
Gold Medium-Term Technical Analysis
Looking at the daily and weekly time frame, a large cup and handle pattern remains the central feature for traders, with the neckline of the pattern found around the $1,930 resistance level.
It certainly appears that the yellow metal is in the process of carving out a handle formation to complete the structure of the mentioned bullish price pattern.
Source by ActivTrader.
The recent rejection from the $1,960 level has seen gold falter towards the $1,800 support level. It now remains to be seen if the pullback in gold is deep enough to complete the structure of the cup and handle pattern.