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XAU/USD: What drives the Gold markets? Detailed analysis and New Trade Idea

GOLD

Traders awaiting FOMC meeting and vaccine developments

Gold’s price steadied in the most recent daily sessions but maintained its downward trend formed since the past months. 

Even though the precious metal’s price is higher from where it started at the beginning of the month, some bearish tendencies have managed to cut back Gold’s advancement in December.

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Some of the most probable matters currently relating to Gold trading will be identified and briefly overviewed in this report. 

We aim to provide awareness and ideas to gold traders. Our technical analysis at the end will complement our fundamentals to provide a complete analysis. 

First of all, the USD of which Gold’s price is denominated into continues to be on the back foot moving even lower in the current week. 

Although Gold and the greenback tend to have a negative correlation, in recent months both have lost significant ground moving downwards, for various and different reasons. 

The greenback’s movement is mostly dominated by the US fiscal stimulus packages aimed at speeding up economic recovery from losses suffered by the covid-19 outbreak. Even though no stimulus package has been announced until this moment, the matter seems to be in the centre of the market’s focus. 

Which Gold producers best “imitate” the price of Gold? Correlation perspective

Media headlines regarding the negotiations seem to keep traders in a wait and see the position and any announcements could increase volatility and force Gold’s price in a sudden movement. Even though Gold’s price is significantly higher from where it started in January 2020, since the previous August and the months forward, a strong selling appetite for the precious metal have brought it much lower. 

Impressively, however, at the moment Gold’s price is approximately $300 higher from where it started the current year, even as it has been in a selling momentum for the past 4 months.

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In my opinion, Gold’s price continues to be driven by news regarding vaccine distribution and usage in various countries. As more people are vaccinated around the world, we could say that economic activity could continue to be on the rise, as they will feel much more confident to leave their house.

However, since covid-19 cases are still on the rise globally forcing governments to impose new lockdown measures, the situation remains very fragile. 

In the short term, traders might be finding reasons to add long Gold positions as was the case for Tuesday’s European morning. 

 

On a separate note, more economic outlooks from many countries around the world will be coming up in the following days with several central banks having interest rate decisions with conferences or reports. 

Countries like the US, the UK, Japan, Norway and Switzerland will be providing information on their economic performance from their central banks perspective. 

In our view, the most important for Gold traders is the US Federal Reserve interest rate decision and its accompanying press conference. 

In many cases in the past, the Fed’s events have produced significant market-moving effects for Gold’s price; thus caution is advised for traders with open positions on Gold or traders willing to trade the event.

Please note this is the final FOMC meeting of the year and comments on how business activity, employment levels, inflation or investment appetite could be of particular interest to traders. The event comes up on the 16th of December, in the American session.

From our previous analysis on GOLD, you can notice that after the price broke 1860 level, it has dropped down to the support we were expecting 1822. Since then, the price of Gold didn’t make any significant changes. 

Well, what from now? 

As you understand, tomorrow is a key for GOLD, Equity markets and USD. So, based on our detailed analysis, we could actually expect both strong “sell-off” and “big bounce”. And what potentially would be our trading strategy?

Based on the current structure, we see that the price is about to form a good major trend continuation pattern, which we have been discussing so many times in our XM Live Basic Room Sessions.

A daily close above 1848 will be the first bullish signal for us. Whether we will buy or sell, I will share tomorrow in our live sessions in the XM Basic Room. No, we don’t hide information, we need to see the US close and price action on tomorrow’s session before the important news on the US market.

If the price closes below 1820 that would be bearish, and definitely we’re going to watch for potential short opportunities below the mentioned levels.

On the chart below, you can see the levels where we’re interested in trading. Potential buy above 1855 – 1860 area with a short-term target of 1875. 

Close below 1839 would trigger shorts down to at least 1830 – 1825 with the expectations of a breakout below 1820 – 1818 support zone. 

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