One of the tools we use to analyze the gold price is the Technical Confluence Indicator (TCI). This indicator combines various technical indicators and levels, such as moving averages, Fibonacci retracements, Bollinger bands, pivot points, and trend lines, to identify areas of support and resistance.
According to our TCI, the gold price is facing strong resistance at $2,025, which is a confluence of several factors. This level coincides with the middle band of the Bollinger on the four-hour (4H) chart, which is a measure of volatility and trend direction. It also aligns with the Fibonacci 23.6% retracement level on the one-month chart, which is a common reversal point.
As long as the gold price stays below this level, the bears have the upper hand and can push the price lower. The next support level to watch is $1,980, which is the Fibonacci 50% retracement level on the one-month chart and the lower band of the Bollinger on the daily chart. A break below this level could open the door for more losses towards $1,940, which is the Fibonacci 61.8% retracement level on the one-month chart and a previous swing low.
Fundamental Factors Also Weigh on Gold Price
Apart from the technical factors, there are also some fundamental factors that are weighing on the gold price. Gold is traditionally seen as a safe-haven asset that benefits from uncertainty and risk aversion. However, in recent weeks, there have been some positive developments that have boosted the market sentiment and reduced the demand for gold.
One of these developments is the progress in developing a vaccine for COVID-19, which has raised hopes of a faster economic recovery and a return to normalcy. Several pharmaceutical companies have reported promising results from their vaccine trials and have applied for emergency approval from regulators. This has increased the optimism among investors and reduced the need for safe-haven assets like gold.
Another factor that has dampened the gold price is the strength of the US dollar. The US dollar index (DXY), which measures the value of the greenback against a basket of major currencies, has rebounded from its two-year low of 91.75 in September to above 93.00 in November. The US dollar has benefited from its status as a global reserve currency and a liquidity provider in times of stress.
A stronger US dollar makes gold more expensive for holders of other currencies and reduces its appeal as an alternative asset. Moreover, a higher US dollar also lowers the inflation expectations, which is another factor that supports gold as a hedge against inflation.
Conclusion
In summary, the gold price is facing strong resistance at $2,025 and has a bearish bias as long as it stays below this level. The technical confluence indicator shows that there are several factors that are keeping the price under pressure and that there is more room for downside. The fundamental factors also support this view, as the positive vaccine news and the stronger US dollar have reduced the demand for gold as a safe-haven asset. Therefore, we expect the gold price to continue its downtrend in the near term and test lower support levels.
