Gold Price Outlook – The Recent Sell-Off May Not be Over Yet

Gold (XAU/USD) Analysis, Price and Chart

• US stimulus package will continue to weigh on gold.
• Gold back below all three simple moving averages.

US President-elect Joe Biden is expected to announce his economic stimulus plan later today which may dwarf previous packages. Last Friday, Mr.Biden said that the stimulus package ‘will be in the trillion of dollars’ and will include $2,000 cheques to US citizens. The stimulus plan will need to pass through Congress, and this looks likely with the Democrats now in control of the House and the Senate. While a weaker US dollar is normally gold-supportive, an out-sized stimulus plan will continue to stoke fears of inflation further down the line, weighing on the price of gold. The recent uptick in longer-dated US Treasury yields, and the steepening of the closely-watched US 2-10 year yield curve, shows that investors are already looking at the possibility of higher rates to dampen potential inflationary pressure.

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Download the Q1 2021 Gold Forecast

The technical set-up for gold remains negative with the precious metal having opened below all three simple moving averages. The 50-day sma has also moved below the 200-day sma forming a bearish ‘death cross’ while the 20-day sma has also turned lower. The current set-up suggests that the November 30 low at $1,764/oz. may come under pressure again which would complete a pattern of lower highs and lower lows off the August 6 high print. Fibonacci retracement support at $1,836.9/oz. needs to be broken convincingly to open the way to $1,816.5/oz. before the multi-month low comes into play.

Gold Daily Price Chart (March 2020 – January 14, 2021)

IG retail trader datashow83.97% of traders are net-long with the ratio of traders long to short at 5.24 to 1.We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Gold price trend may soon reverse higher despite the fact traders remain net-long.

What is Market Sentiment and How Does it Work?

What is your view on Gold – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.