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  • Gold prices continue to consolidate above $1800 amid thinned out US holiday trading conditions.
  • The formation of a bearish flag might have the gold bears excited but expectations for central bank easing could keep them at bay.

Spot gold (XAU/USD) continues its gradual grind higher for a second day, the precious metal having bounced at support at the psychological $1800 mark on Tuesday, following a hefty sell-off at the start of the week that saw spot prices drop from the high $1800s. As things stand, spot gold prices are flat at just under $1810.

Central bank easing might keep gold bears at bay

This morning’s ECB minutes contained little new information regarding the ECB monetary policy stance, with further easing in the form of tweaks to the PEPP and TLTROs heavily expected in December. However, alongside Wednesday’s FOMC minutes, they did serve as a reminder that more stimulus from two of the worlds is on the way.

This ought to keep real interest rates low for the foreseeable future, especially when inflation starts to pick up in 2021. This should support gold going forward, although of course any unexpected positive surprise regarding vaccines or US fiscal stimulus could trigger further downside.

Over the long-term, with global central banks increasingly looking to 1) let inflation run hotter than they did over the past decade and 2) eyeing up a move towards non-traditional digital currencies, these themes will make it difficult to call when gold’s top is in.

Decisive moves unlikely before December

Trading conditions are thin on Thursday, given a lack of US participants in the market due to the Thanksgiving holiday (meaning half days for US markets). Friday and next Monday are also likely to be quieter than usual, given a much larger proportion of US participants enjoying long weekends than usual.

Thus, as gold continues to consolidate above $1800 following its swift move lower from the $1870s earlier on in the week, the next decisive mover, whichever direction that may be in, is likely going to have to wait until December (next Tuesday or later).

Gold bears eye break below bearish flag, though 200DMA will provide tough support

Gold prices have been gradually edging higher within the bounds of a bearish flag over the past two days, with the pole being the steep drop seen on Monday and early Tuesday.

A move below $1805 (XAU/USD currently trades at $1813) might signal the beginnings of the next leg lower, though gold will almost immediately come into contact with stiff support in the form of the 200-day moving average, which comes into play just below the psychological $1800 level. The next area of resistance comes in around the $1790 mark (the 1 July high and 14 July low).

However, if the gold bears fail (perhaps as a result of the fundamental argument made above about low real interest rates supporting gold), then gold prices could be in for a swift move higher in December, with no notable levels of resistance ahead of the $1850 mark.

XAU/USD key levels

 

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