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The price of gold has tumbled by over $50.00 since the start of the week as traders and investors continue to turn heavily negative towards the yellow metal on mass. The rising US dollar, and more importantly, the US 10-year yield spooked traders, with the bond market continuing to signal inflation fears as it hits an eight-year high.
Gold now looks set to incur its worst quarterly loss since 2013 at the current price. Gold, once a solid bet against inflation is out of favour with investor, as Bitcoin, a new hedge against inflation, trades close to the $60,000 resistance level.
The ActivTrader market sentiment tool shows that retail traders are still extremely bullish towards the price of gold despite the major price drop. Historically, fading one-way sentiment skews has proved lucrative, and has proved a good indication of the where the market is headed.
Later today US President Joe Biden is expected to announce a massive new infrastructure plan. Rumours suggest that the size of this new spending bill could be $3 trillion or even $4 trillion. Naturally, the bond market appears unhappy about the implications of such a massive spending bill without clear details being outlined how it will be paid for.
In order to pay for the spending bill the Biden administration is expected to announce the biggest US federal tax increase in over a decade. Some groups have also been pushing for the Biden administration to raise US fuel taxes.
So far, gold traders appear to be bearish towards the massive government spending bill and tax hike. However, it is still possible that the price of gold could stage a relief rally or rebound sharply after the Biden administrations announcement later today.
Gold still faces further risk events later this week, as the United States economy releases the ISM manufacturing survey and the Non-farm payroll jobs. Both releases are expected to come in very strong, which could provide further headwinds for the price of gold, as it could be bullish for the greenback
According to the ActivTrader Market Sentiment tool traders are still irrationally positive towards gold with sentiment increasing to 75 percent positive today, marking a 3 percent increase since last week. I suspect that gold will continue to suffer more losses while sentiment remains this high.
Gold short-term Technical Analysis
The short-term technicals for gold show that a large head and shoulders pattern has formed, following the recent price drop back towards the worst levels of the year so far.
Weakness under the $1,676 level is required to activate the bearish price pattern. According to the overall size if the mentioned pattern gold price could drop towards the $1,585 support level over the short-term.
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Gold Medium-term Technical Analysis
According to the daily time frame a bearish breakout from an ascending broadening wedge pattern has taken place, following yesterday’s move under the $1,690 level.
Ascending broadening wedge patterns are typically considered to be bearish reversal patterns. According to the overall size of the pattern the price of gold could fall towards the $1,450 level over the medium-term.
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