Search ForexCrunch
  • Gold is on the bid as the US dollar slides towards a critical support area. 
  • US elections could be problematic for the US dollar over the following weeks, supporting a fundamental case for gold.
  • Technical forecasts see a higher dollar medium term, which is problematic for gold on the charts. 

The price of gold is trading on the bid at $1,897.50 and some 0.88% higher on the day as the US dollar crumbles away. 

The range on the day so far has been between $1,875 and $1,898.52 as the bulls approach a key resistance area on the charts between 1908 and 1928. 

However, while some may argue that the secular bull market in precious metals is still intact as capital will continue to seek shelter from a prolonged period of negative real rates, there is more at play here pertaining to the US dollar. 

It is true, that the US dollar has been sliding, as explained in the prior article last week, Gold Price Analysis: XAU/USD bulls looking to the dollar to give back some ground.

Indeed, the US dollar, potentially, has more to give back until the DXY reaches a critical support area in the 93.50s which should continue to feed the gold bulls.

However, if this is just a healthy correction prior to a prolonged recovery to the upside, then the bullish narrative comes unstuck.

Nevertheless, analysts at TD Securities are more optimistic for gold.

”The stage is set for a precious metals rebound”, analysts at TD Securities said, adding, ”market participants should recall that the consolidation in the complex was catalyzed by a positioning squeeze that has since morphed into election-related jitters, pummeling gold bugs in response to the months-long delay in passing a multi-trillion dollar stimulus bill.”

If history is anything to go buy, the USD’s track record in the build-up to election day has been poor, although, following the election, the dollar has performed on the bid. 

”If the election is the hurdle that has kept inflation expectations from rising further, as suggested by the prevailing market narrative, then gold bugs may not need to look too far into the future to expect the multi-trillion-dollar fiscal deal,” the analysts at TD Securities argued.

Gold and DXY technical analysis

Casting eyes back to last week’s analysis, Gold Price Analysis: XAU/USD bulls looking to the dollar to give back some ground, the price action has played out as expected:

DXY 5-wave in the making?

It seems so…

As can be seen, the DXY’s price action has played out as expected.

The 5th-wave can be expected to begin at the support structure identified in the above charts. 

The 5th-wave will be problematic for the gold bulls.

Especially if it is on the kind of trajectory as forecasted in the prior analysis and the chart below:

The reverse head and shoulders is a bullish pattern that according to the above analysis has the DXY headed towards a 61.8% Fibo and prior structure in the higher end of the 95 handle. 

Meanwhile, the price of gold is also playing out as forecast, in part due to the slide in the US dollar.

As can be seen, the price is headed towards the resistance structure, as expected.

There is a high probability, that if the dollar can catch a bid in the 5th-wave, that gold will struggle to extend higher, resulting in a continuation of the downtrend.