Gold Price Forecast: XAU Bull Flag Breakout Begins To Pull Back

It’s been a rather unique market backdrop over the past year. Gold illustrates this fairly well as the covid pandemic showed up squarely in the midst of a long-term bullish cycle in the precious metal.

Gold actually started this cycle in Q4 of 2018, sparked by an off-hand comment from FOMC Chair, Jerome Powell. At the time, the Fed had just hiked rates yet again, marking the sixth such move in the prior couple of years. The big question was when the Fed might stop the tightening, but with equity markets remaining buoyant throughout the hikes, there was little reason for the Fed to slow down, or so it was thought.

Powell was directly asked where he thought the ‘neutral rate’ was, which is a theoretical goldilocks rate of perfection where policy is neither stimulative nor restrictive. He responded that he thought it was ‘a long way off,’ leading to the heavy inference that the Fed had plans for many more rate hikes in 2019 and thereafter.

Well, matters didn’t go down like that. In short order after that comment stocks had started to tank. And Gold prices started to pop-higher. In 2019, the Fed actually ended up cutting rates three times, and the Central Bank came into 2020 on their back foots already when covid began showing in American capital markets in February.

Gold rallied through much of this, save for a quick but violent spike during March as matters were really becoming troubling around the spread of the virus. But, as a constant onslaught of stimulus from the Fed continued to buoy US markets, Gold prices got right back on that bullish trend and continued to rally.

It was June when matters really heated up, and Gold prices went near-parabolic as they shot up to a fresh all-time-high in early-August. At the time, Bitcoin was trading below $12,000. Ethereum was below $400.

The next nine months were rough for Gold bulls as the yellow metal continued to claw back those Fed-fueled gains. This entailed a greater than 38.2% retracement of that prior major move. But, as the door began to close on Q1 and open into Q2, matters began to shift.

1 2 3
View single page >> |

Disclosure: See the full disclosure for DailyFX here.

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.
Almoni33 3 weeks ago Member's comment

You have a detailed understanding of small timeframes, but it would be nice to zoom out and say yes, I see gold at 2600 or the opposite at 1460, but you are silent.