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The price of gold has moved sharply lower, following a major rout in the price of silver. The shiny metal tumbled below the $27.00 support level, marking a whopping $3.00 decline from the highs of the week.
Usually, the price of gold effects the price silver, however, such a huge decline in the price of silver appears to have injected a dose of fear into the metals market, causing gold, copper, and palladium to turn lower.
Something else to note is yesterday’s major rally in the US dollar index. A major technical breakout took place in the index, and this is also weighing on the metals space at the moment, especially metals priced against the greenback.
Metals have advanced on the FED put over recent months, or to be more precise, the theory that the Federal Reserve will continue to pump trillions of US dollars into the system and further devalue the world’s reserve currency.
Reports that the Biden administration is making solid progress with the latest COVID-19 stimulus package is now been taken as bullish for the US dollar. Bonds have also started to rise and caused a flight into the greenback.
Looking at the technicals behind gold, perhaps the most striking near-term feature is buyers inability to overcome the $1,870 level. Numerous failed upsides attempt at this level have caused bears to take the yellow-metal lower. A lack of demand above $1,870 has clearly weighed on gold speculators, who may now try to take gold down towards the $1,700, and dare I say it, $1,600 level.
Gold is currently battling around its 50-day moving average. A sustained loss of the 50-day MA should be considered heavily bearish and could prompt a test towards the 100-day and possibly the 200-day MA.
Gold Sentiment Analysis
Market sentiment towards gold is not bearish at the moment, in fact it is very bullish. The ActivTrader market sentiment tool shows that 67 percent of traders are bullish towards gold.
Source by ActivTrader.
If sentiment remains high and gold continues to drop I would expect the price of gold to capitulate under the $1,800 support level.
Many traders may have been caught up in the false notion that gold will continue to move higher because retail traders are pushing the price of silver up. Pay close attention to sentiment towards golds this week because a major short squeeze could be coming.
Gold Technical Analysis
Lower time frame analysis shows that gold is trapped inside a large falling price channel, as the yellow-metal has repeatedly failed to move above the top of the channel, despite many upside attempts over recent days.
Weakness below the $1,800 level should cement the bear case here and could cause the price of gold to plunge towards the $1,730 and potentially the $1,700 support areas.
Source by ActivTrader.
Because the price channel is declining it is possible that an even greater fall towards the $1,680 area could take place. In theory, bulls failed to move price above the top of the channel so bears could test towards the bottom of the channel.
