Gold markets initially tried to rally during the trading session on Friday, the 200 day EMA being tested. At this point, if we break down below the 200 day EMA it is likely that the market could go down towards the $1800 level, possibly even the $1750 level. That being said, I think that eventually gold does recover due to the fact that stimulus will be rather large, even if it is not as big as people had hoped. Joe Biden proposed a $1.9 trillion stimulus package, but it looks likely that he will struggle to get all of it. The report by Goldman Sachs suggesting that he might have to accept $1.1 trillion has put a bit of a chill into the markets overall.
The US dollar gained strength during the trading session on Friday, which weighs upon the value of gold, so at this point in time it is likely that we will continue to move back and forth based upon currency fluctuations and the stimulus talks going forward. The stimulus situation is probably not as big of a “slam dunk” as people had initially thought, because there are some Democrats that are in more conservative areas that will face backlash for spending that kind of money. Furthermore, Congress is already setting up as being a very dysfunctional thing, so I think things will get worse in the US political arena, not better.
To the upside, the market breaking the top of the candlestick for the last week or so could send this market looking towards the $1900 level, possibly even the $1960 level. Breaking above there could open up a move towards the $2000 level, and then beyond to the $2100 level. I still believe in the longer-term attitude of gold going higher, but obviously we have to worry about various things like the strength of the US dollar and of course the yields in the 10 year note. As long as the US dollar looks even remotely attractive, that will continue to press the narrative of the market dropping from here. All things been equal, I think there will be a lot of volatility so you have to be very cautious about your position size. Longer-term, I still think that gold makes an excellent investment with central banks around the world doing everything they can to devalue currencies.
