On August 12, 2020, the price of gold is hovering at around $1,900. Earlier in the day, it made a low of $1,863. Just last week on 7th August, gold recorded a high of $2,075, and analysts were convinced that it would surge towards $2,200.
The $2,075 high was more than 42% increased compared to its low of $1,484 that was recorded on March 20 during the flash crash due to COVID-19. Once gold crossed the $2,000 level for the first time on August 4, the next psychological resistance level was $2,500. To a large extent, the traders are still considering that the $2,500 level is a valid resistance.
Gold bulls are considering the current sell-off as an opportunity since they believe that the price of the precious metal is likely to surge again.
How Low Can Gold Drop?
Based on the daily charts, it seems that a big correction has already happened as the gold price is hovering near its 50-day moving average. Today, the 50-day smooth moving average is trading at $1,829 while the spot gold price is $1,869 per ounce.
The other two critical levels for the gold price, if the downside momentum continues, at the 100-day moving average, trading at $1,762, and 200-day SMA which is currently located at $1,650. That is the lowest level that the gold price can fall for mow according to the technical analysis.
Why Gold Will Not Fall Beyond This Level
The reason why gold may not fall below the 200-day SMA level is due to the growing geopolitical tensions that are brewing between the US and China. Additionally, the US presidential elections are coming up.
There is no guarantee that Joe Biden will become the next president of the United States despite the recent announcement of Kamila Harris as his running mate. Biden might ease the tensions existing between the US and China. Also, the COVID-19 impact on the US and the global economy, in general, will not go away as rapidly as it came in.
The current sell-off in the gold markets may look disheartening but the future remains positive for the precious metal. There is excessive geopolitical uncertainty and global economic growth will expectedly remain fragile.
Investors remain skeptical about the strength of the current COVID-induced stock market. Large investors like Warren Buffet are still sitting on piles of cash. This shows that not everyone is supporting the stock market rally and that is positive for gold.