GOLD : Need Breakout
(Wed, 28 Oct 2020). Gold prices consolidated at above US$ 1,900 this week amid souring market sentiment due to a resurgence in coronavirus cases around the globe. The absence of geopolitical catalysts and a relatively muted US Dollar index have led gold prices to consolidate within a tight range between US$ 1,900 – 1,910. Some traders may prefer to sit on the sidelines until the political skies are cleared after the US election, which is only one week from now.
Although Democratic presidential candidate Joe Biden appears to have a comfortable lead in national polls, the potential tail risk of a Trump-win scenario can’t be neglected. This renders the risk-averse US Dollar susceptible to a strong haven bid should the election outcome derails from the poll forecasts. A strengthening US Dollar is likely to weigh on precious metal prices, especially when ‘risk off’ sentiment is prevailing.
The medium-term outlook, however, appeared biased towards the upside as the Fed continued to expand its balance sheet, albeit at a much slower pace compared to earlier this year (chart below). The Federal Reserve balance sheet hit an all-time high of 7.177 trillion in October, surpassing the previous record seen in early June. Ample liquidity and ultra-low interest rates may buoy the medium-term outlook for precious metal prices, albeit short-term pressure remains.
Technically, gold prices came off the all-time high (US$ 2,075) in early August and have since entered a three-month consolidation. Prices attempted to stabilize since end September after finding a strong support at US$ 1,870 (the 76.4% Fibonacci retracement).
Gold prices have also formed a few bearish harmonic pullbacks (highlighted in black straight lines) before entering into an “Ascending Channel” in October. Immediate support levels can be found at US$ 1,900 (50-Day SMA), followed by US$ 1,883 (lower Bollinger Band). A narrowing Bollinger Band width suggests that tight range-trading may continue.
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