Gold – The 2020 Gold Rush Is Temporarily Over

In summary, the weekly chart is still bullish. However, since the reversal signals in the shorter time frames have recently accumulated dramatically, it seems to be only a matter of time until the weekly chart turns as well. As a result, gold will likely not be able to hold the extremely steep upward trend channel of the past few weeks for too long. A return to the upper edge of the middle trend channel in the US$1,800 range should therefore at least be expected. Should the entire rally of the last two years being, the minimum 38.1% Fibonacci retracement would see gold prices correcting towards US$1,725 over the coming months. Moreover, it would not come as a surprise if gold prices were to reverse the entire rise since the June low at US$1,670. Subsequently, however, the bull market could then take off again from a heavily oversold foundation and reach new highs next year.

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

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

On the daily chart a first but rather clear reversal candle appeared last Friday. Since the high at US$2,075, the gold price has temporarily lost already more than US$200! As a result, the stochastic has lost its embedded status on Tuesday. The bears are thus all set and the daily chart now has plenty of room for the correction to run.

Should the gold price therefore be unable to hold and defend its initial support at around US$1,870 in the short term, another slide towards US$1,800 can be expected. The decisive break of the former resistance at US$1,800 unleashed the exaggeration of the past weeks.

The final correction target is the zone between the June low at US$1,670 and the 38,1% Fibonacci retracement at US$1,725. The rapidly rising 200 day moving average (currently at US$1,648) should make it into this zone over the weeks or months. However, it is still too early to take a close look at such distant price targets.

With the clear reversal signal on Friday and the miserable start into the current trading week, the daily chart has activated a sell signal. In particular, the loss of the embedded stochastic is heavy. Thus, the bears, which have been silent for months, are now celebrating their counterattack. Since a huge amount of inexperienced traders and investors have jumped on the gold bandwagon in the steep rise of the last few weeks, we must anticipate a continuation of the ugly bloodbath.

Commitments of Traders: Gold – The 2020 Gold Rush Is Temporarily Over

Commitments of Traders for Gold as of August 4th, 2020. Source:CoT Price Charts

Commitments of Traders for Gold as of August 4th, 2020. Source: CoT Price Charts

Despite the exploding gold and silver prices (SLV), the CoT report for the futures market continues to be very stable. Overall, the constellation has thus continued to improve. In any case, the decades-long game of price manipulation via the paper gold market stopped working about a year ago. How else can it be explained that the commercial players were not able to stopped prices and were also not able to increase their shorts into these rising prices.

Source: Gold Charts 'R'US

Source: Gold Charts ‘R’US

The main reason is likely to be the significant increase in physical delivery requests. As a result, a further 9,047 requests for physical delivery were added during the last trading week. This means that 43,921 “Delivery Notices” have already been submitted for the August contract. In the previous record month of June there were a total of 55,102. At the same time COMEX stocks as of August 6th, 2020 had fallen by 171,805 ounces to 36.41 million ounces of gold compared to the previous week. Similarly, gold stocks already reserved for customer delivery (“eligible”) have also decreased by 905,860 ounces to 20.86 million ounces.

Overall, futures trading on the COMEX appears to be losing further influence. This trend began with the physical gold exchange in Shanghai and was accelerated this year thanks to Corona with a severe supply and demand shock. In a historical comparison and from a classic perspective, the CoT report still provides a clear sell signal. However, given the different environment now, the CoT report loses more and more importance. The exploding physical demand had made the paper chart house look old.

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