- The bulls have lost their grip, in addition to a very short-term upward possibility, the bets are firmly placed downward.
- Opponents will closely monitor developments at this stage.
Recently, the price of gold has run out of steam. While the bullish case has been made clear, there are arguments for a deep correction, not just the mood of the risky scenarios, but it is a double-edged sword. On the one hand, the risk will lead to an exodus of speculative offers and could in itself trigger a strong downward correction, triggering obsolete sales stops.
On the other hand, global economies are experiencing large amounts of bankruptcies, while rising gold would be a risk game, margin calls on long stocks and risky assets could see gold suffer, so the bulls might have to suffer a little for longer.
Analysts at TD Securities rely on their fundamental analysis and argue that “as the appetite for risk continues to grow, the appeal for precious metals is fading in the eyes of safe haven buyers”.
As ETF gold holdings continue to grow at a rapid rate, open interest in gold futures contracts continues to decline after the burst of VET, with preliminary evidence that trading in over the counter have conquered market share. As a result, liquidity remains scarce – which could suggest that the flow of liquidity takers, such as CTAs, would have an inordinate impact in this environment. In this context, although this is not our base scenario, gold prices are threatened, as a further decline below $ 1690 / oz could catalyze CTA liquidations which could have an inordinate impact due to scarce liquidity.
Distribution could be the next chapter in the bullish history of gold
The following tables provide a playbook for short XAU / USD:
There is room for reading to the previous structure of the daily chart before the next bearish impulse. Below we can see the next likely downside target areas and structures.
The 4HR chart below shows a MACD bearish outlook and a price below the bearish moving average of 20 approaching 200 MA.
As the dust settles, we continue to expect gold prices to recover as capital seeks shelter from an extended period of negative real rates.