The Thanksgiving week was marked by an unexpected event in the financial markets – gold price broke lower. The move, last Monday, triggered some unusual strength in the USD pairs.
Shortly after the gold’s breakout, the EURUSD pair fell a hundred pips points. The same did the GBPUSD or the AUDUSD. However, while the fiat currencies recovered the lost ground and even made new marginal highs against the greenback, gold did not. In fact, gold continued its decline, triggering one of the most interesting divergences to date.
The move lower in gold is even more surprising if we check what Thanksgiving means historically for the trading community. More precisely, the Thanksgiving week is usually marked by slow price action, undecisive moves, tight ranges, and so on. At least this year, this was not the case.
Following Monday’s breakout, the gold price did not look back. In fact, it did not post one single bounce. Even today, ahead of the weekend and with one trading day left until the end of the trading month, gold looks bearish. It consolidates against a horizontal base, in what seems like a typical descending triangle.
Gold Leads Bitcoin?
Another divergence that made headlines this week was the one between gold and Bitcoin. While gold broke lower, it did so after a bearish price action in the last three months.
All this time, Bitcoin continued its advance. It even reached close to $20,000, a new all-time high. Naturally, the divergence triggered intense debates in the financial community.
Is Bitcoin the new standard when it comes to a store of value. Is gold outdated? When will the world realize that Bitcoin is the only solution to our debt problems? And so on, along these lines…until yesterday.
While America enjoyed its day off due to the Thanksgiving holiday, Bitcoin crashed. At one point, it slashed over 12% of its value.
Now, for a store of value to lose so much in less than 14 hours is unacceptable. Therefore, we may interpret this differently – what if gold actually leads Bitcoin?
While gold moved lower, Bitcoin diverged because it is more volatile. We all knew that. But once the divergence ends, Bitcoin should follow gold just like it did at the start of the COVID-19 crisis.
Back to Normal?
But why did gold price broke lower? The move started in anticipation of the vaccine positive news. In November, three companies announced promising results on their vaccine developments. As such, gold, used as a refuge against the doomsday, corrected lower.
Suddenly, investors saw the light at the end of the tunnel and reacted appropriately by selling gold and buying stocks. In fact, investors’ response is logic. We all know that stocks rose during the pandemic, but they did so because of central banks printing cheap money. They did not rise on good news. Well, this time they did, and for a good reason.
Gold Price Technical Analysis
When the price of gold made a new all-time high above the $2,000 level it attracted a lot of interest from the investing community. After all, gold looked impossible to stop as the pandemic was at its strongest moment.
But the more time passed, the more the world learned to cope with the cards dealt. As such, gold corrected and was unable to bounce anymore. More precisely, it bounced but it only formed lower highs. Such price behavior is characteristic to bearish trends.
Gold formed a triangle as a reversal pattern. Moreover, the last part of it, before Monday’s break, was a triangle as well.
The measured move of the bigger degree triangle equals its longest segment. Effectively, it means the first rejection from the $2,000 level, projected from the last Monday’s breakout level. It means a move to $1,700 or lower is in the cards.
Bears would want to remain short with a stop at $1,880 and a target at $1,700. Moreover, this may be the start of a longer-term bearish trend. If the world comes out of the pandemic sooner than the market expects, the economic recovery to follow should affect the price of gold as investors shift to other assets. Therefore, trailing the stop by the time the price reaches $1,700 might be a good idea.
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Gold Price Forecast
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