The price of gold has seen a strong rebound this week as market participants continue to expect that a new COVID-19 stimulus bill from the United States will be agreed upon before the end of the year. Traders and investors are clearly anticipating that the US dollar will depreciate further if another huge economic stimulus package is passed in US congress, making traditional stores of wealth, such as gold, a natural hedge against further expected weakness in the greenback
Yesterday’s December FOMC monetrary policy decision gave the price of gold another solid boost, as the US central bank noted that they remained committed to more economic stimulus. Federal Reserve Chairman, Jerome Powell, warned that the coming months would be “particularly challenging,” due to the ongoing surge in coronavirus cases.
Analysts are now speculating that the Federal Reserve could actually increase its bond-buying programme next year if US economic conditions continue to worsen. Gold is likely to be a major beneficiary if this comes to pass, and the yellow-metal could start to trade back above the $2,000 level in early-2021.
Just to give traders some context to how gold reacts to U.S. stimulus, following the 2008 financial crisis the Federal Reserve announced a massive bond-buying scheme in early-2009, known as quantitative easing, sending the price of gold from $900 to $1,900. The Federal Reserve’s balance sheet peaked at $4.5 trillion in assets in 2012, and then the central bak gradually began to taper QE, sending the price of gold lower.
The FED announced QE4 in response to the COVID-19 crisis in March this year, sending gold prices to a new all-time. With the US economy coming under pressure again, the long gold trade certainly looks attractive again, meaning that we could see gold breaking $2,000 sometime in 2021.
GOLD Short-Term Technical Analysis
Lower time frame analysis shows that gold is trading inside a falling price channel, between the $1,750 and $1,925 levels. With bullish momentum growing it is likely that gold price are going to challenge towards the top of the falling price channel very soon.
Falling price channels are typically considered to be bullish reversal patterns, which certainly hints that gold may be preparing to challenge back towards the $2,000 resistance level if a breakout from the top of the price channel, around the $1,925 level, takes place.
Source by ActivTrader.
According to the size of the falling price channel, a huge rally of around $175 could take place if the $1,925 resistance level is surpassed, placing the $2,200 level as a viable upside target.
Technical analysis highlights that the $1,860 level offers the strongest form of technical support for gold in the near-term. To the upside, the $1,900 and $1,910 levels offer interim technical resistance prior to the all-important $1,925 level.
GOLD Medium-Term Technical Analysis
The bigger picture for gold shows that the yellow-metal has a strong medium-term bullish bias while the price trades above the $1,920 level. The $1,920 level is the 2012 trading high, and also the neckline of a huge cup and handle pattern on the daily and weekly time frame.
According to the size of the cup and handle pattern gold could rally towards the $2,800 level over the medium to long-term. Typically, cup and handle patterns are amongst the most powerful bullish patterns once they are triggered into. These patterns are highly reliable, and are defined by long periods of consolidation, and then a strong parabolic move the price starts to break to the neckline of the cup and handle.
Source by ActivTrader.
Watch out for a strong upside move in gold if bulls start to gain upside traction above the $1,920 level on a weekly basis. This may leaded to buyers taking out the all-time trading high, around the $2,070 level, and searching for new price discovery around the mentioned upside targets.