Gold rebounded on October 30 but it closed the last week of the month in losses, quite below the crucial $1900 level. The precious metal showed some signs of recovery as the week came to a close after the US dollar retreated amid its repositioning into the monthly closing and ahead of November 3 US Presidential Election.
Nonetheless, increasing risks of the COVID-19 resurgence in the US and Europe underpinned the dollar and, in turn, limited the upside momentum in gold. In the meantime, uncertainty over the election outcome also continues to give support to the dollar bulls.
Gold holds onto the recent gains as the big week starts. However, it has formed Doji candlestick on the daily chart which indicates that the bullish pressure is weakening. The dollar will continue to attract bids as worries come into most of the financial markets ahead of the elections in the United States. Currently, it seems the markets favor the safe-harbor US dollar.
The outcome of that election will determine the extent of the possible fiscal stimulus aid that will usher in the next direction that gold will take. Meanwhile, the global COVID-19 statistics and US ISM Manufacturing PMI be eyed for fresh trading impulse.
The Persistent COVID-19
Early in the Asian session, gold appeared bearish. It weakened as the US dollar continued to strengthen against other major currencies as the US presidential elections draw near. At the time of writing, gold is hovering above $1875.
Gold is known to share a negative correlation with the US dollar. It weakens when the reserve currency gains which makes it expensive for the holders of other currencies to buy gold. Recently, the dollar has been trading strong amid the strengthening risk-off sentiment in the markets as a result of a resurgence in COVID-19 cases and the announcement of new lockdown measures across many countries.
The risk-off mood is now supporting the haven appeal of gold which is now limiting the losses in the precious metal even as the dollar continues to make some gains and trade strong. Across the European continent, the number of new cases has already doubled in just five weeks, driving Portugal and Britain to follow Germany and France into re-introducing the lockdowns.
Traders are keenly waiting for the results of the US presidential elections to make their next moves in gold. The latest opinion polls suggest that it might be a tightly contested election. That scenario alone may push the price of gold significantly higher in the coming days.
In the hourly chart, gold has already regained some ground above the 50-hour moving average (HMA) hovering at $1876. However, upside momentum remains limited below the downward-sloping 100-HMA at $1887.
The gold price continues to hover within a rising wedge formation after dropping steeply on Wednesday. The hourly Relative Strength Index (RSI) has now turned south at 53.00 which now threatens the midline. This move suggests that the recovery momentum may have lost some steam.
A formation of a cluster of strong support levels around $1875 is required to resume the downtrend towards the nearest critical cap located at $1860. A technical breakdown on this chart will fuel the downside.
On the other hand, a strong break above the 100-HMA barrier may expose the falling trendline resistance at $1891. At that level, the 100-daily moving average (DMA) coincides.
Gold Teases Inverses Head-And-Shoulders Below $1900
Gold prices have already printed some slight gains of around 0.16% on the day as they took rounds around $1882 in the Asian session. In doing that, the precious metal shows an inverse head and shoulders bullish chart pattern on the hourly formation.
The MACD is flashing some bullish signals even if milder which are odds of the quote’s upside break to the pattern’s neckline located at $1,887.60 now seems achievable. But, a confluence of 200-HMA and a dropping trend line from October 21 may challenge the gold buyers around $1892 later on.
During gold’s sustained run-up past $1892, the $1900 psychological threshold will determine any further upside movement. On the alternative, $1873 and the previous month’s low around $1860 may provide some support before September’s low of $1848 is reached.
Although the buyers may return around the September bottom, further weakness below that same level may not shy away from challenging the early-July tops around $1818.