After failing to recapture 2,000 USD - Gold in front of a deeper correction to 1,800 USD?

September 09, 2020 12:00

Source: Economic Events September 09, 2020 - Admiral Markets' Forex Calendar

While the reaction in Gold after FED Chairman Powell's expected speech in Jackson Hole, where he brought up "average inflation targeting", meaning that the FED will allow inflation to run above the FED target rate of 2% for a period of time, could be considered fairly strong, the yellow metal failed to recapture the 2,000 USD mark.

While we still consider the technical picture to be neutral between 1,865 and 2,075 USD, with the failed push above 2,000 USD, the risk of a break to below 1,900 USD and a push down to 1,800 USD remains an option.

A potential trigger for a sharper drop in Gold could be delivered from the bond market. While the precious metal has withstood selling pressure resulting from rising US yields, this could change. Here are some key points to consider:

  • Powell's Jackson Hole rhetoric foreshadowed that such a change was in store
  • US economic projections continue to improve
  • 10-year US yields are making their way back to 100 basis points and may move even higher.

Still, this all wouldn't necessarily result in a clearer downtrend in Gold since we would expect the FED to sooner than later step into such developments in US yields, cap rates and finally start to actively communicate a yield curve control policy, which would be very bullish for Gold and level the path for a deep run above 2,000 USD and significantly higher.

Short-term and purely technically, Gold remains positive above 1,900 USD and is capable of another attempt at recapturing the 2,000 USD mark any time.

On the other hand, a break below 1,865 USD would level the path down to 1,800/810 USD as a first target:

Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between April 29, 2019, to September 08, 2020). Accessed: September 08, 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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