Gold – The 2020 Gold Rush Is Temporarily Over

Gold had an unbelievable run over the last few weeks and rushed towards new all-time highs at US$2,075. By clearly outbidding the old high of US$1,920 gold is officially back in a bull-market! However, the move over the last few months had become extremely overextended and Gold started the new trading week with a string reversal and a fast and deep pullback. 

Review

Since the last significant low at US$1,670 on 5th of June 2020, gold prices have been able to put on a brilliant performance over the last two months and have risen by over US$400! Initially, the gold train hesitated to set off on its journey following the weeks of this tenacious sideways phase in April and May. (GLD)

However, with the sustained breakout above US$1,800, gold bulls became unstoppable. Within three weeks, the price for one troy ounce of gold exploded by over US$270 higher! And this is despite the fact that gold had been already rising from US$1,160 since August 2018 (i.e. for almost two years).

Consequently, there have been new all-time highs almost daily. The former all-time high at US$1,920 was not a hurdle at all. Nor did the psychological round resistance number of US$2,000 show any impact. Instead, the gold bulls drove the prices directly into unknown technical terrain and have so far pushed prices up to a record high of US$2,075.

Silver prices also trumped on a very large scale, reaching the highest level since March 2013 at last Friday’s high of US$29.86. This meant that the price for one troy ounce of silver has been risen by a sensational 156.5% since the “corona low” in mid of March.

Gold posted a strong reversal last Friday

Last Friday, following another record run with new highs at US$2,075, gold prices pulled back somewhat more significantly to US$2,015 during the day. Despite an immediate recovery, the countermovement at the start of the current trading-week was not really convincing anymore, so that the steeply risen gold price suddenly found itself in lofty heights. Quickly after realizing this, gold quotes started crashing lower and slipped below the US$2,000 mark. The signs for a temporary end of the gold rush had been suddenly increasing dramatically and were confirmed with gold falling like a stone towards US$1,862 on Tuesday early morning.

Technical Analysis: Gold in U.S. Dollars

Gold in US dollars, weekly chart as of August 12th, 2020. Source: TradingView, Gold - The 2020 Gold Rush Is Temporarily Over

Gold in US dollars, weekly chart as of August 12th, 2020. Source: Tradingview

Without any problems gold rushed towards the two price targets mentioned at US$1,800 and US$1,900. The old all-time high at US$1,920 was no obstacle at all. On the contrary, the easy skipping gave the gold bulls another boost. Of course, both the monthly and the weekly charts had already become hopelessly overbought and extremely overheated. Statistically speaking, the gold market overdid it completely. But the current constellation is unique: after all, the entire financial world of the last 50 years is being shaken. It is absurd to believe that the problems accumulated over decades can simply be printed away.

From a technical point of view, gold finally managed to break free from the medium-green upward-trend channel in mid-June and since then has been marching further upwards in the even steeper light-green channel. However, with the sell-off on Tuesday, prices quickly moved back into the lower half of this trend channel. In view of the exaggeration of the last weeks, the probability for a rebound towards the lower edge of the trend-channel in the range around US$1,870 had strongly increased. In addition, the old all-time high from the year 2011 waiting at around US$1,920, started to act as a magnet.

The need for correction has piled up

The Stochastic Oscillator has been bullishly embedded in the overbought zone since the beginning of May. An extremely large amount of correction need has accumulated here. The oscillator last reached its oversold zone on the lower side in December 2019. Hence, the gold market has a long way to move lower before it reaches a similar oversold set up again on the weekly chart. Since an important interim top at US$2,075 has been reached on Friday, we must expect a longer lasting corrective phase, which could well extend into November or December. Then, however, there would be an ingenious opportunity to buy the dip.

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