The moment of truth for the gold price has come. For the third time in a row, it reaches horizontal support at the $1,880 level. So far, it bounced twice from it. However, the rally that followed the bounces was not strong enough for the price of gold to break the series of lower highs.
Because of that, the bias moving forward is that the price of gold will eventually break the support unless it manages to break the series of lower highs first.
Lower Demand for Gold in Q3 2020
Demand for gold dropped sharply in the third quarter of the year. In fact, demand dropped by 19%, its largest drop in a quarter for more than a decade. Jewelry demand dropped by almost 30% due to COVID-19 uncertainties – high unemployment, lockdowns. In contrast, gold demand for bars and coins increased in the third quarter, but not enough to offset the decline in global investment demand for gold and demand for jewelry.
Gold Price Technical Analysis
The technical picture on the gold price looks more than interesting. The price broke above $2,000 in August, setting a new all-time high. Around that point in time, all major fiat currencies made a new high for the year against the USD. More precisely, the EURUSD, GBPUSD, AUDSD – they all traded at the highs. As such, one can argue that it was not necessarily a move higher in the gold price, if not a move lower in the USD.
Now that the USD reversed, gold followed. Unlike Bitcoin, which decoupled from the general USD strength, gold did not. Therefore, more downside is possible on a break of the $1,880 level.
Bears may want to sell a break and a daily close below $1,850 with $1,915 stop loss. For the take profit, bears may want to consider a risk-reward ratio of 1:2 or 1:3 for the short trade to make sense.