Gold fell to its lowest level since July, when the US dollar appreciated
The yellow metal gained about 24% YTD, mainly due to extensive government stimulus and the central ban
XAU/USD is on its way to record the largest monthly decline since November 2016
Gold prices (XAU/USD) fell to their lowest level since July, when the US dollar strengthened due to growing concerns over new Covid 19 cases in Europe and growing doubts about additional stimulus from the Federal Reserve in the United States.
Fundamental analysis: higher dollar depresses gold price
A stronger USD makes the price of gold more expensive for those who own other currencies.
“We are seeing the emergence of a risk-free environment, which means that the dollar will continue to strengthen and the price of gold will come under heavy pressure in the near future,” said Howie Lee, an economist at OCBC Bank.
The price of gold has risen by about 24% since the beginning of the year, largely thanks to exceptional incentives from governments and central banks around the world to revive their economies.
Charles Evans, the President of the Chicago Federal Reserve, said on Tuesday that the United States economy expects a delayed recovery from coronavirus effects and a “recessionary dynamic” if Congress does not provide another fiscal stimulus package.
He said that the Fed could raise interest rates before inflation starts to average 2%.
On the other hand, the country’s economic policy makers opened the door for additional incentives for small businesses affected by the pandemic, but did not offer a quick passage.
“We are also seeing a slight pessimism regarding the fiscal stimulus from the US, and that has probably only dampened inflation expectations a little,” said Kyle Rodda, an analyst with IG Markets.
Rodda also said that the market is still hoping for changes in political attitudes that could lead to a higher gold price in the long run.
Technical analysis: Gold stops on support
Gold is currently on track to record its worst week in six months as the price of the yellow metal has fallen over 4.5% in recent days. Monthly losses now stand at 5.3%, the largest monthly decline since November 2016.
XAU/USD Daily Chart (TradingView)
After breaking the rising trend line at $1,950/oz, it paved the way for an accelerated descent into a $1,845/oz – $1,865/oz range. This is where the horizontal support line and the 200-DMA are located, making this zone an attractive facility for gold buyers.
A breach below this zone opens the way to $1,815/oz.
Gold reached a 2-month low after the dollar rose to a 2-month low due to growing concerns over new coronavirus cases in Europe and growing doubts about further stimulus from the Federal Reserve.