The short term bear case
The general consensus among most analysts is for gold upside in the short and medium term. A recent piece on Bloomberg’s Market Live Blog is making a case for a gold correction in the near term. The logic for the correction was as follows:
- The central bank stimulus has now been priced in and the reflation trade is now faltering.
- The financial system is not collapsing, yet core gold bullishness is based on the fear that central bank liquidity will devalue fiat currencies and lead to inflation combined with safe haven demand.
- Therefore, recent bullishness is over done and it is reasonable to expect some correction in gold over the coming weeks
The bullish gold case
On the same day Bloomberg’s Marekt’s Live blog also had a piece arguing for more gold upside. The logic of that pieces was as follows:
- The Rising COVID-19 cases in the US will further increase the economic damage already inflicted.
- This above point means the odds for further losses have risen for shares and more Fed stimulus can be expected to come. Both should aid gold upside.
- The Fed has already made it clear they are willing to increase stimulus with Fed Vice Chairman Richard Clarida saying the Fed is prepared to take additional steps if necessary.
So, there we have two opposing views on gold. So, what is your take on gold? The medium term picture for gold upside remains in tact, especially with record low interest rates and more stimulus potentially on the way with rising COVID-19 cases.
However, in the short term it is a more open question whether we will see more upside in gold or whether a correction is due. Remember that heavy stock selling has also been weighing on gold recently, so that could hinder higher prices. If gold does indeed correct how far down could it fall? The $1680 is obvious near term support and bulls would be expected to reload at that point in the current climate. It was telling that the article making a case for near term gold bears was not making a case for general medium term gold bearishness. The bullish picture remains in place, even with a short term bear. To invalidate the bullish outlook for gold the market would need to see news of a successful vaccine for COVID-19.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.