Gold price inched downwards as an uneasy optimism has returned to the market. This is evidenced by the rally we have seen in American and European equities including the DAX and the FTSE 100.
Gold is often viewed as a safe-haven option. Therefore, when risks fall, the price often declines. And risks have fallen, according to the CBOE Volatility Index, which has dropped by more than 20% in the past five days.
Meanwhile, the dollar index, which is often looked at in the same lenses as gold has risen by more than 1%. This has happened even as the Fed has moved to print unlimited amount of money in the past few years through its open-ended quantitative easing program. Indeed, the Fed has added more than $1 trillion to its balance sheet in the past week alone and the number is set to increase. In Washington, Trump has talked about another round of stimulus worth more than $2 trillion.
In the longer-term, there are risks that support gold. The biggest risk is about consumer and corporate credit risk in the US. With many companies and individuals being highly levered, there is a likelihood of a credit crisis happening this year. This crisis would lead to more intervention by the Fed, which will lead to more cash printing.
Gold price has inched back to the important support level of $1,645. On the two-hour chart, the price is attempting to move back into the previous ascending triangle pattern. The pair also appears to have found significant resistance at the $1,670 level. I expect the pair to remain being bearish if it re-enters the previous triangle pattern. If it does, the next target will be the intersection of the diagonal line of the triangle and the important support of $1,630.