Is the Gold Rush Over?

on May 1, 2020
Updated: Dec 19, 2022

One of the top performers during the coronavirus crisis, gold seems to have turned the corner recently as US indices continue to rally. Technical analysis suggests that the recent bullish trend could be under threat, after markets broke a series of higher highs and higher lows.

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Although It has traded with a bearish tone for the entire week as US stocks have gained, it is still early to tell whether this streak will be sustained in the upcoming week.

What’s happening with Gold?

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The start of the coronavirus health crisis puzzled gold bulls – the price of gold moved lower, not higher, as the general consensus indicated.

What traders did not anticipate was the shortage of dollars in the financial system. As it turned out, investors looked for safety in the good old dollar, and not in the shining yellow metal.

Gold has long been viewed as safe-haven. Investors of all types keep a portion of their accounts invested in gold to hedge against inflation mainly. In troubled times, gold tends to rally, and the small portion of the account invested in gold tends to offset the risk-off sentiment gripping the traditional markets.

Therefore, the initial move lower in gold spooked investors – it came at the same time as the Dow fell below 20k, making even long-term investors wondering when it will bottom.

Then the Fed came to the rescue. It announced the opening of multiple dollar swap lines in a strong coordinated move with other central banks around the world.

Gold turned on the announcement. And it did not look back until it made a new high.

What could happen next?

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Since then it printed only a marginal new high, with little or no follow-through. Moreover, a close look at the price action surrounding the recent top reveals a triangle that acted as a reversal pattern. Is that a double top around 1735?

The triangle did break lower, fueling bears hope that a top is in place. For traders involved on the bearish side, gold needs to retrace some more before declaring victory – a break of the higher lows series is needed. Bulls, on the other hand, should fear the ugly combination of a possible double top and a triangle as a reversal pattern.

Gold rallied since mid-2018. The bullish trend started from $1135 with little or no pullbacks. The 2020 coronavirus crisis should have sent the price of gold much higher, considering the carnage in the stock market in March.

Yet, gold only made a marginal new high. Is it time for bears to claim victory?