What Drives the Gold Market?

With the start of the new trading week, the price of gold and oil rose along with many other commodities, however, crude oil lost ground but gold is still above $ 1950.

Last week was the first week of the last 10 weeks that gold ended lower, but was still higher than the main daily Moving Averages. The uncertain fate of the US aid package, in addition to the latest fears of a second wave of the Corona virus in the European Union, supports the gold market. Especially after the latest GDP data from the UK and earlier today from Japan, which showed that Japan’s GDP was seasonally lower by – 7.8% and the YoY data down by a colossal -27.8%, the worst ever recorded. On the other hand, the US unemployment claim last week fell below one million for the first time since March, and there are growing hopes for the vaccine that will continue this downtrend.

For the week ahead and after liquidity moved to stock markets last week, which cut gold by more than $ 100, the market needs a very strong reason to move higher.

Gold could rise further if the major parties in the United States fail to agree on a final stimulus package, or if they end up approving less than $1 trillion fiscal gain. Also, COVID-19 news, especially in the Euro area, will be followed by market participants, as more border restrictions or travel bans mean fewer business opportunities, which in turn saves is likely to support gold prices.

On the other hand, if the US stimulus package is approved with at least $ 2 trillion, closer to the Democrats’ proposal, the market bears will have the upper hand, and as the market waits to hear the final test of the three vaccine candidates, and any positive news is a drag on gold prices too, equities are likely to rise along with USD which will likely put further pressure on the gold price.

Finally, however, geopolitical tensions, coupled with the latest US-China technology rivalry, are not something that can give investors enough confidence that gold prices will move too far in the opposite direction of market risk.

Technical overview

$ 1940, 20 DMA is the first support and $ 1965, 50 MA on the H4 chart is the first resistance. In the four-hour chart, the RSI is at 49 with the OBV trend line flat, while on the daily chart, the RSI is above 55 and the price is above the OBV trend line. However, the H1 chart still supports a slight uptrend as the price is above the 20- and 50-hour moving averages, and the RSI is above 55. The key level is $ 1950 as the current focal point, resistance levels initially at $ 1965. 50 MA and then $ 2000. In a downtrend, $ 1940, 20 DMA could open the door for a deeper trend around the $ 1900 key level, but 50 DMA at $ 1867 could reverse the trend, otherwise gold uptrend is still in place.