Technical View
Price has been climbing since August 2018’s low of $1160 to a recent high of $1702.69 on 9 March 2020. Since that high, price has been declining for the past two weeks. On the weekly chart, there was a bearish Engulfing candlestick price pattern. This is a warning of a bearish reversal for price. It means that price could have reached a high at $1702.69 and is heading lower. This week, we have price follow-through on the first day of the week. MACD has confirmed a possible price high with a bearish divergence warning of its own. The 50% Fibonacci correction point of the rally from $1160 to $1702.69 comes in at $1431.30 while the 62% Fibonacci correction point comes in at $1367.30. In between this two Fibonacci supports, a possible support is the previous support at $1398.15. There is another price support at $1383.80. We think that support zone from 1367.30 to 1398.15 should be able to halt a price decline. If price is supported at this support zone, we see price going higher again to $1700 in 6-9 months’ time
Fundamental View
The fundamental for gold are supportive of a price rally.
Interest rate has been cut to almost zero. The US Federal Reserve brought interest rate to a target rate of 0.00% to 0.25% on Sunday evening 15 March 2020. Market has been expecting the Fed to cut rate to almost zero percent during the March 17-18 FOMC meeting but the Fed cancel the meeting and instead cuts interest rate before the meeting in an emergency move. The US Federal Reserve has cut interest rate in 2 emergency situations to zero and this should reduce the holding and opportunity cost of Gold, which should spur the price of gold higher
The coronavirus may have slowed down in China but in Europe and the U.S., the virus is spreading at a faster rate than the spread in China, which was its birthplace. The economic impact could be big. On 16 March 2020 European Commission forecasted the effects of the virus could push the EU into a recession. Together with the U.S, the economic impacts are likely to lead to a global recession. This could favour Gold which is considered a safe haven asset.
Currently, for the past few days, the market is in a “sell everything” mood. This could be a situation of losses or margin calls and whatever assets, especially those profitable, are liquidated to cover margin calls or losses arising from the rapid decline in the equity market. This cannot last forever. One day, this movement will stop and value will prevail. Gold will regain its glitters.
Strategy
Look to buy gold on its decline below $1400. Stop should be placed below $1345. We are expecting a rally back to $1700 in 6-9 months’ time.