Gold Price Analysis: XAU/USD continues climbing after smashing through the $2000 psychological barrier

Fundamental backdrop

In great times of worry gold will always since and this time is no different. The COVID-19 pandemic has hit the economy hard with shops and business being forced to close due to lockdowns being imposed by governments. Even now the first wave been and gone countries like Australia are being forced to act again as a second spike of cases has been noted in some densely populated areas. The uncertainty that this brings is sending investors and trades toward safe-haven assets and gold is one of the biggest beneficiaries. 

As there is all this uncertainty, the worlds central banks are pumping the markets with liquidity via QE and this has a knock-on effect to yields in the fixed income markets. If inflation rises due to the weakening of the dollar and yield collapse this could mean gold becomes more attractive. Gold does not offer any interest payments or dividends but it is a store of value. 

In a very negative scenario, if the price of the dollar continues to fall at its current pace it could mean problems in the inflation rate. If the COVID-19 pandemic gets worse in America and the producers of the raw goods see a rise in demand (due to the import prices rising) inflation in real terms would rise. This coupled with rising unemployment figures and jobless claims is a very toxic mix. To top this all off, the US is still at odds with China. If the two worlds largest economies continue to butt heads gold could continue to be in demand.

Gold monthly chart

It is hard for technical analysts for forecast where a price will get to when all-time highs are breaking. Fibonacci forecasts have been a great tool in the gold market and when the all-time high of 1980 broke the expansion tool worked a treat. This time around as you can see from the chart below there are two key Fib extension levels to keep an eye on. The 138.2% at USD 2256.30 per ounce is the first one and the second lies at USD 2461.66 per ounce. I would round off the second level to USD 2500 per ounce and the price might struggle there. Obviously these are just projections based on one methodology and there is a chance that the bulls may crash through the levels.

For now, as the price keeps making higher high higher low waves keep following the trend. There seems to be no stopping the yellow metal and with soo much uncertainty around what is to say the price won't hit USD 3K.

Additional levels