Will gold complete its near 10% drop this month?

Januar 13, 2021 10:00

Since gold’s impressive +40% rally from the March lows after the coronavirus pandemic, it peaked in August last year before falling 15% for the rest of the year, as the weekly chart shows below. Since December, gold bulls tried to push the price of the yellow gold higher in anticipation of the typical seasonal rally in January.  

Source: Admiral Markets MetaTrader 5, Gold, Weekly - Data range: from Jul 16, 2021, to Jan 12, 2021, performed on Jan 12, 2021, at 7:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

Last five-year performance: 2020 =  +25.13%, 2019 = +18.30%, 2018 = -1.60%, 2017 = +13.17%, 2016 = +8.55%, 2015 = -10.30%. 

However, after a push higher for the first few days of the year gold found technical resistance at the 1,950.00 price level which was around the high of November 2020. In the daily chart below, the horizontal resistance line caused buyers to exit and sellers to step in, as shown by the bearish engulfing candle in the yellow box. 

Source: Admiral Markets MetaTrader 5, Gold, Daily - Data range: from Apr 29, 2021, to Jan 12, 2021, performed on Jan 12, 2021, at 7:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

While the market is currently experiencing high levels of volatility, it seems as though sellers are in control for now. Taking a bigger picture perspective from the weekly chart there is potential for gold to fall back down to key support around the 1,765 price level.

This horizontal support line, shown by the dotted line in the weekly chart below, also corresponds closely to the ascending trend line support shown by the thick black line below. 

Source: Admiral Markets MetaTrader 5, Gold, Weekly - Data range: from Jul 16, 2021, to Jan 12, 2021, performed on Jan 12, 2021, at 7:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

A fall back to these support levels would represent a near 10% drop since the rejection of November 2020’s high earlier this year. While January tends to be a seasonally bullish period for gold and other metals, investors are currently favouring stock market returns with US indices and the DAX 30 trading at record highs. 

The US dollar has also started a potential short-covering rally higher after months of declines. That could also pressure gold towards the downside as traders favour the US dollar once more. However, the levels are clear on where to operate from with patience and discipline required to navigate such volatility. 

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