Gold about to see the biggest monthly loss since November 2016 – bulls in danger?

September 30, 2020 09:00

Source: Economic Events September 30, 2020 - Admiral Markets' Forex Calendar

Gold saw its worst week in six months last week and is about to see its biggest monthly loss since November 2016, mostly driven by the current rebound in the US-Dollar. Meanwhile, according to data from the Comex, money managers have continued reducing their Gold long positions at the fastest pace since March 2020. We might come to the conclusion that the picture for the yellow metal has significantly darkened.

While we are feeling sceptical amid these developments and aren't feeling very comfortable painting a positive picture for Gold, we are still positive on the yellow metal.

We are still convinced that the US central bank FED has no other choice than to sooner, rather than later, act and start again ballooning its balance sheet further significantly beyond the 7 trillion USD mark.

Our expectation here is mainly based on the following:

  • FED chairman Powell made comments in front of the US congress last week when he said the central bank is committed to helping the economy and that the FED will continue to support and help the US economy "for as long as it takes"
  • Powell's comments echoed our take from last week, in which we foresaw the FED delivering liquidity for smaller-sized corporations sooner rather than later
  • Democrats and Republicans have not yet found an agreeable fundament for another economic relief package.

That said, we remain cautious of aggressive long engagements in Gold, but continue seeing the current bearish price action as a "shake-out" which is testing the confidence of Gold bulls before we get to see another attempt to push above the 2,000 USD mark.

Still, short-term, the picture is bearish after the break below 1,865 USD, the August lows, with a target on the downside around 1,800 USD, while the short-term target on the upside can be found around 1,900 USD:

Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between May 16, 2019, to September 29, 2020). Accessed: September 29, 2020, at 10:00 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 increased 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 in five years, it was up by 28%.

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