Gold with first weekly close above 2,000 USD – further gains ahead?

August 12, 2020 14:00

Source: Economic Events August 12, 2020 - Admiral Markets' Forex Calendar

With a closing above 2,000 USD last Friday, the yellow metal saw its first-ever weekly close above this level. Despite the sell-off on Tuesday in which the precious metal lost more than 5%, or dropped more than 100 USD per ounce, the most in one day since 2013, we don't see any reason why the sharp rise in the precious metal won't continue.

One main reason for yesterday's sharp drop was certainly the extended trend on the upside.

But this is amidst ongoing printing of trillions of dollars from the US central bank, which is needed as a stimulus to tide the U.S. economy over during the coronavirus pandemic.

And while negotiations between Democrats and Republicans in the US to hammer out a stimulus relief package are still ongoing, with US President Trump having signed a series of executive orders extending coronavirus economic relief to US Americans, it seems likely that further fiscal stimulus will come sooner rather than later in one way or another. It is also clear that such a relief package must be financed somehow – most likely with freshly printed USD from the FED.

Thus, with ETF demand still on the rise, currently amounting to around the equivalent of 3,376 tons of Gold in ETFs and US 10-year yields remaining under pressure, driving real yields to under 1%, a short-term stint to as high as 2,500/2,600 USD seems a serious possibility.

An initial impulse could be delivered if US inflation sees a small uptick in today's data, even though, technically, the extended trend and aggressive wash out of weak hands yesterday could easily continue, with the precious metal finding a potential long trigger near the former All Time High around the 1,900/920 USD region, or a little lower at around 1,850 USD.

In general, the bullish trend remains intact as long as we are trading above 1,660 USD:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between April 1, 2019, to August 12, 2020). Accessed: August 12, 2020, at 04:00 PM GMT - Please note: Past performance is not a reliable indicator of future results or future performance.

In 2015, the value of Gold fell by 10.4%. In 2016, it rose by 8.1%. In 2017, it increased by 13.1%. In 2018, it fell by 1.6%, and in 2019, it increased by 18.9%, meaning that after five years, it was up 28%.

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