Gold stays bullish in the long-term, but with sell-off potential in the short-term

April 08, 2020 11:00

Source: Economic Events April 8, 2020 - Admiral Markets' Forex Calendar

The technical picture in Gold stays tense. After finding a (short-term) bottom around 1,440/450 USD, and then pushing back above 1,600 USD in response the massive monetary stimulus from the Fed on March 23, the precious metal dropped back below 1,600 USD over the course of the last week of trading.

And even if the situation and volatility in Equities is to relax a little, despite the VIX having dropped back below 50 points since the beginning of March, we consider chances to be still high that a new wave of de-leveraging hitting global financial markets is a serious option, and will naturally not only result in high demand for the US dollar given the global USD shortage, but potentially also in a new wave of aggressive selling in Gold.

This can also be seen in the wider than usual spread between physical and paper Gold out of the massive short-supply in physical Gold, resulting out of Coronavirus shutdowns of precious metal refineries.

That disruption in mind, and given the massive steps from the Fed in addition to the deficit spending from the US government, to be long with Gold in the mid- to long-term is an interesting bet from a risk-reward perspective. But in the short-term, in our opinion, a sharp drop in Gold could happen at any time.

Technically, the key-support can still be found around 1,440/450, above that level another push up to 1,700 USD stays realistic.

Nevertheless, another "liquidation wave" could bring a short-term drop below 1,440/450 USD into play which would technically darken the picture, activating 1,250/260 USD as a first target:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between January 8, 2019, to April 7, 2020). Accessed: April 7, 2020, at 10:00pm 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 increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.

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