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Gold: What Next?

14 May 2021

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Price action in gold has been particularly strong in recent months: Since its ‘double bottom’ formation and bullish key day reversal in Mar-Apr, the price has rallied by over 10% and has broken above its 50-day moving average (FIG A).

While all of that has been encouraging for the bulls, the gold price is now poised. It’s close to two key technical resistance levels: Its 200 day moving average and the top of its recent downtrend channel. The key question, therefore, is: What’s next? Will the downtrend now resume or will upside momentum win out with gold breaking out above those key levels, and trend higher over coming weeks/months?

FIG A: Gold price (US$/oz), shown with 50 & 90 day moving averages

210514 A

Harry examines the key reasons why we think it’s the latter, namely:

  • The Fed continues to debase the dollar (as monetary policy remains easy).

  • Real bond yields and implied Fed Funds rates are likely to remain subdued (or potentially fall further)

  • Sentiment and Market positioning are not excessive (and indeed, at their least Bullish since early 2019)

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Topics: interest rates, Fed, technical, market positioning, Short View, gold, sentiment