XAU/USD has been bid up with incredible gusto as fears of second waves, collapsing economics (especially inflation) and mixed movements in risk assets send traders to safe-havens and value stores.
There is a tale of two trades in XAU currently as the bidding over the past 90-days has made the short-term view a little clouded but the long-term view pretty clear.
Here are the two views:
The third quarter of 2020 is forecasted to be positive for the global economy and already there are signs that economies are bouncing back faster than forecasted, which is a risk for safe-haven assets.
Coupled this with the fact that XAU/USD is at a strong resistance level of USD1,755, we are likely to see weakness. And that’s despite the fact that the relative strength indicator (RSI) is still positive, if we look at the chart the RSI is actually fading. Thus, if it does start to fall in the coming few weeks, first support level is USD1,650 with the second level is at $1,575.
Bottom line from the shorter term techincals: The positive run in the first 6 months of 2020 is at a crest. Indicators suggest a gradual weakening in price over the next few months.
However, the volume that has gone through XAU of late does add to longer term support. If we look at GOLD tickers, over USD250 billion has been rotated from listed market products into physically backed bullion. Index valuations and fund holdings have also surged 11.5% and 21.5%, respectively over the past 90-days. There are clear long-term holders that see long-term pricing. Therefore, 2021 is likely to be a good period for gold overall, supporting XAU/USD in the medium term.
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