Gold is looking for an excuse to go higher…
Gold is looking for an excuse to go higher…
…And that excuse is the devaluation of the dollar. Gold is not immune to fundamental events. However, recently has been sideways for the most part of two months.
Gold and the election
A theme revolving around Biden’s win is the dollar’s devaluation, with many banks calling a drop in the dollar if Biden is elected. Given the historical precedent of Gold rallying on dollar weakness, a Biden win may push the yellow metal higher. Furthermore, a sell-off in the equity markets on a Biden win may give Gold’s tailwinds as investors and traders switch to risk-off.
Commerzbank Analyst Daniel Briesemann stated that the “Market will not doubt follow the talks in Washington very closely,” and that “Gold could profit in the event of a deal because the U.S. dollar would presumably be in less demand then and would probably depreciate”.
It is a simple recipe that revolves around the dollar’s devaluation and its historically inverse relationship with Gold. Stimulus and Support from the U.S. government and the Federal Reserve are likely to depreciate the dollar, pushing Gold higher. Furthermore, a Biden win may incentivize a further sell-off in the U.S. dollar, again, pushing Gold higher.
Gold technicals are looking strong
Currently, Gold is sitting at $1,922 an ounce – Right on a very strong support/resistance level. It has been on a strong upwards trend from a drop in the previous symmetrical wedge. Furthermore, the highs to the trend’s low constitute a full Fibonacci retracement. A break of the $1,958 level, which is another strong support/resistance level and is right on the 50% fib retracement level, before the election, may see Gold rally back to its all-time highs and seek further targets of $2,204.
However, a Trump win on election day may see a sell-off in Gold, with prices breaking the upwards channel down back to a full retracement to $1,847
Are you looking at Gold?
Gold continues to fall on positive vaccine news, as both Pfizer and Moderna reveal trials that show 90%+ efficacy vaccines against the Coronavirus.
Gold breached a fundamental Fib level at $1,835, looking for a next internal support/resistance level at $1,800 and the 50% retracement level at $1,761.
As the news cycle slows, with the election in the past alongside initial vaccine hype fading away, it is essential to realize that not only is the Coronavirus continuing to ravage the economy, it continues to ravage the families and lives of many around the world.
Many have turned the Coronavirus into a statistical exercise, looking into the future when we eventually look past the Coronavirus. However, it is currently a present problem, with present consequences. Keep this in the back of your head when you trade and invest. Here is your week ahead.
With the vaccine on the horizon, I was thinking about an industry that should indirectly benefit from an increase in worldwide economic activity. For example, we can safely assume that airline equities will rally on the back of confirmation of a working vaccine. However, ancillary services to airlines should follow through with the airline rally, for example, companies who make the food for the airlines or airports.
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