Gold Price Analysis: XAU/USD battles key resistance around $1,900 as bulls brace for 2021
Gold gained over 30% in 2020, buyers attack five-month-old falling trend line.
Central bankers, US dollar weakness favor gold bulls but Brexit, stimulus hopes probe further upside.
Vaccine developments combat surging virus numbers, US politics is in the spotlight.
China’s Caixin Manufacturing PMI to decorate Asian calendar, risk catalysts keep driver’s seat.
Gold closed the books of 2020 with a bit over 30% yearly gains while taking rounds to $1,900. In doing so, the yellow metal extends recovery moves from November 30 to combat a falling resistance line from August 07, 2020. Although optimism surrounding the coronavirus (COVID-19) vaccine, Brexit headlines and the US covid aid package favor the commodity buyers, via US dollar weakness, bulls catch a breather in search of fresh clues as virus count keep fears of weak economics on the table.
Recently, markets concentrate on the US politics where Nancy Pelosi has been re-elected as the House Speaker, which in turn favors the odds of easy money from the upcoming Democratic government. However, Georgia’s run-off can disappoint Democrats given their holdings in the Senate. It’s worth mentioning that the US policymakers are yet to finalize the $2,000 paycheck despite disbursing $600 and have already got President Donald Trump’s go for a bigger amount.
· Gold Price Forecast 2021: XAU/USD looks to build on 2020 gains with central banks staying dovish
Other than the US aid package news, global investors can also keep their eyes on the Brexit headlines and the month-start activity data. While the UK’s passage of Brexit trade deal with the European Union (EU) favors the sentiment, doubts over the future relations of ex-neighbors challenge the mood. Talking about activity numbers, after upbeat prints of December’s official PMI, China is up for releasing Caixin Manufacturing PMI data at 01:45 AM, expected to reprint 54.9, ahead of the Western releases.
The virus details suggest the global count keeps climbing with the UK and the US, followed by Japan, gaining major attention amid the recent surge in the cases and the death toll. While vaccinations are on, fears of another round of lockdownside, most of it has already started in Europe, question the mood.
Against this backdrop, Wall Street benchmarks closed 2020 with an upbeat tone with S&P 500 and Dow Jones ending the year at record top.
Moving on, gold traders will follow risk catalysts while also trying to justify any disappointment in data with a further pullback.
Technical analysis
Upbeat momentum indicators join a sustained break of 100-day SMA, at $1,894 now, to favor the bulls eyeing a break above a falling trend line from August 07, 2020, currently around $1,901. Also acting as an upside barrier is December 2020 top near $1,907. Meanwhile, a five-week-old ascending support line near $1,891 offers extra support to the downside past-100-day SMA.
The Chart of the Week: Gold's technical alure with ebbs and flow between here and $2,160
Gold has carved out a bullish technical picture across the monthly, weekly and daily time frames and investors will take note of the monthly 50% mean reversion coupled with an increase in net long positions.
In the meanwhile, the weekly picture has a market testing a critical resistance zone while the daily chart could be in the throes of forming an overextended W-formation.
The following is a top-down analysis of the structure of the market which derives at a wait-and-see scenario from a daily perspective, monitoring what could be the makings of the next swing trading opportunity.
As illustrated, the correction of the monthly bullish impulse from down in the 1450 regions has completed to a 50% mean reversion level.
This is a significant enough correction to expect a fresh bullish impulse to develop in a continuation of the broader and long term bullish trend.
By measuring the length of the correction from bottom to top, we can find a -272% Fibonacci level at 2160 for which investors will have on their radars for the long-term.
Weekly chart
The weekly chart shows that the third wave has started to retrace the correction by as much as a 61.8% Fibonacci retracement. In doing so, it has penetrated the old resistance area that has now turned support.
While some consolidation could now be in order, there is an upside bias while holding above the old resistance tat has now turned support.
Daily chart
MACD shows that there is bullish momentum in the price on the daily chart.
If price continues higher, an extended W-formation will be on the cards. This is significant as that is where the next higher probability opportunity for swing traders could arise.
An overextended W-formation once topped out, would be expected to retrace to at least 38.2% Fibonacci level. Traders can enter short at an optimum level from a resistance structure on a lower time frame, such as the 4-hour chart, to target the downside.
Once the downside has completed, bulls will be coming back to the table and will have the overhead resistance, 1965, in their sights again.
A break of the overhead resistance will bring in the prospects of a meaningful spell through the psychological 2000 level where the longer-term target of 2160 will be in focus.
For now, it is a matter of seeing whether the current support holds and how far the bulls can run within this daily impulse before sellers emerge again.
· CORONAVIRUS UPDATES:
Global Cases: 85.48M (+504,398)
Global Deaths: 1.85M (+7,090)
U.S. Cases: 21.11M (+191,700)
U.S. Deaths: 360,071 (+1,380)
U.K. Cases: 2.65M (+54,990)
U.K. Deaths: 75,024 (+454)
TH Cases: 7,694 (+315)
TH Deaths: 64
Myanmar Cases: 126,345 (+729)
Myanmar Deaths: 2,728 (+17)
U.S. vaccinations in 2020 fall far short of target of 20 million people
Only about 2.8 million Americans had received a COVID-19 vaccine going into the last day of December, putting the United States far short of the government’s target to vaccinate 20 million people this month.
California has identified first case of new Covid strain found in UK, Newsom says
UK to impose tougher restrictions on millions of people as Covid cases soar
The U.K. government outlined plans on Wednesday to impose stricter coronavirus restrictions on millions of people across England as a new strain of the virus spreads across the country.
Health Secretary Matt Hancock said more regions would be placed into the toughest Tier 4 category from 12:01 a.m. London time Thursday.
New Covid-19 Strain Found in China
Highly contagious variant was detected in woman who had flown from the U.K., where new strain first was found
CCDC Weekly said the 23-year-old woman had tested negative for Covid-19 two days before her flight to China. Later sequencing of her positive test revealed it was different from a small outbreak of cases in Shanghai in November and the strains from Wuhan, where Covid-19 was first found.
India approves AstraZeneca and local Covid vaccines, rollout in weeks
· Inflation is poised to rear its head in 2021 but may not stick around long
As the economy picks up speed through 2021, investors could have to wrestle with some unexpected inflation pressures, if only for a little while.
Bond market traders and Wall Street experts have been signaling rising inflation from its current dormant levels.
In fact, many see inflation moving toward and perhaps a bit above the Federal Reserve’s 2% target rate that has been elusive for much of the past decade. The primary driver is an economic reopening fueled by more Americans getting vaccinated, which will cause upward price pressure in industries that were held back during the coronavirus pandemic.
· $2,000 stimulus checks likely doomed after McConnell refuses to separate them from unrelated Trump demands
· Nancy Pelosi reelected as House speaker as Democratic majority narrows
· Weekly jobless claims fall for a second straight week
The number of people filing for unemployment benefits for the first time unexpectedly fell last week, marking its second straight decline.
Initial jobless claims declined by 19,000 to 787,000 in the week ended Dec. 26, the Labor Department said Thursday. Economists polled by Dow Jones expected initial jobless claims to rise to 828,000. The previous week’s total for initial claims was upwardly revised by 3,000 to 806,000.
· China’s 2019 GDP growth was revised downward to 6.0%, according to a statement released Wednesday by the country’s National Bureau of Statistics. That compared against a pre-revision 2019 growth rate of 6.1%.
· Beijing says it will take ‘necessary measures’ in response to NYSE delisting of 3 Chinese companies
China vowed on Saturday to respond to the delisting of three telecommunications giants by the New York Stock Exchange under an executive order signed by President Donald Trump in November.
The ministry of commerce said in a statement that China will “take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises,” according to the state-run Global Times.
The NYSE said on Thursday that it will delist China Telecom Corp. Limited, China Mobile Limited, and China Unicom Hong Kong Limited. Trump signed an order in November that barred Americans from investing in companies it alleged were connected to the Chinese military.
The investment ban will take effect on Jan. 11, just days before President-elect Joe Biden is due to be inaugurated. According to NYSE, trading in the three companies will be suspended possibly as soon as Jan. 7 or as late as Jan. 11.
Reference: CNBC, Reuters, Worldometers
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