Will Gold’s seasonal weakness break the 50ema?

Februar 05, 2021 10:30

Since breaking horizontal resistance around the 1,386.00 price level in 2019, gold has been on a meteoric rise higher. In fact, from that date, gold surged more than 50% higher towards the 2,076.00 price level. Since then, the price of gold has been in a steady decline as investors favoured the stock market, helping to lift them to all-time highs.  

To add further pain, gold is about to enter a seasonally bearish period. Over the past five years, the monthly price of gold has closed lower than where it opened 80% of the time in February. The resurgence of the US dollar hasn’t helped gold’s case either, suggesting more pain could be ahead. 

Source: Admiral Markets MetaTrader 5, GOLD, Weekly - Data range: from Oct 20, 2013, to Feb 4, 2021, performed on Feb 4, 2021, at 8:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

In the above weekly chart of gold, it’s clear to see the break higher from horizontal resistance in June 2019. After topping out in August 2020, gold has steadily declined and is now sitting on the 50-period exponential moving average (ema) shown by the red wavy line. 

This moving average provided support for buyers in April 2019 and in March 2020. Buyers also stepped in briefly from this moving average in late November 2020. However, the bounce higher has been muted and the price is now back at the level. 

A clear sustained break of this level may be possible if the US dollar continues to rally higher. If so, traders may keep an eye on the next level of support which is the 100-period exponential moving average shown by the green wavy line.  

Source: Admiral Markets MetaTrader 5, GOLD, Daily - Data range: from Aug 15, 2019, to Feb 4, 2021, performed on Feb 4, 2021, at 8:40 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

In the above daily price chart of gold, the 100-period exponential moving average from the weekly chart is represented by the black horizontal line. This chart shows how much space there is to room towards that level if it can break the weekly 50ema. 

The daily chart moving averages have been congested recently and have also moved sideways. However, as they are now starting to fan apart it could be an early warning sign of higher volatility coming in. A drop to the weekly 100ema would amount to an approximate 5-6% fall. 

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