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Gold struggled to gain upside traction last week, as bulls failed to build on the recent $200.00 price recovery from the worst level of the year, close to the $1,680 support level.
The signing of the Build Back Better deal and inflation fears have been a major boon for gold prices, with the yellow-metal even de-coupling from its long-standing inverse relationship with the US dollar.
Another interesting dynamic has entered into the mix, and that is COVID-19. The price of gold, alongside silver and copper, took a big hit during the start of the COVID-19 pandemic.
The main concern now with traders is that the imposing of strict lockdowns and COVID-19 raging across Europe will see traders selling precious metals due to concerns about rising inflation.
Should we see COVID-19 spreading across to other developed nation, and lockdowns imposed, such as Germany, Australia, and Austria have recently done then traders need to be mindful of the consequences.
Gold has typically performed best over QE being implemented. This is something to watch if the US were to go into lockdown again, although this is far from certain at this juncture.
Current sentiment metric towards gold show that traders are on the fence right now. The ActivTrader market sentiment tool shows that 51 percent of traders are bearish towards gold.
This neutral sentiment towards gold suggest that the up move is coming into question. Traders had remained bullish towards gold all-year. Now that sentiment is neutral, gold’s price movement becomes more difficult to read from a sentiment perspective.
Gold short-term Technical Analysis
The short-term technicals for the yellow metal shows that a head and shoulders pattern has been formed, following the recent price rejection from the $1,870 level.
Looking at the four-hour price chart, a break from the $1,830 to $1,870 range is required for the next $40.00 directional move to take hold.
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Gold Medium-term Technical Analysis
The weekly chart shows that gold remains a big buy over the medium while trading above the $1,800 level. Please be aware of my earlier comments on COVID-19 if we lose the $1,800 level.
If the recent bullish breakout above the $1,800 level holds it is likely to prompt a test of the $1,960, $2,080 and $2,200 levels, based on the fact that a multi-year trendline breakout is underway.
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