The price of gold rose to a one-month high yesterday thanks to renewed hope for a new recovery plan, but it is now evolving under major resistance.
The price of gold has been rising since the beginning of the week. It has been trading a little over 3% since its lows of Tuesday at $1825 and even reached a high of $1,900 last night.
The price of gold has been rising since the beginning of the week thanks to renewed investor hope for a new stimulus plan in the United States. Congressional leaders are reportedly close to agreeing on a $900 billion stimulus package that would include household cheques, extended unemployment benefits, support for small businesses and funding for the Payroll Protection Program (PPP).
Against this backdrop, investors are repositioning themselves on gold and other precious metals because of fears of rising inflation. Indeed, when the debt ratio reached an unsustainable level, periods of high inflation followed. Although a rise in inflation as in the 1970s in the United States is unlikely, the Fed could be a little more tolerant of inflation. It also loosened its nuts in August, indicating that it will now wait for “average” inflation of 2% (for a while) before raising rates.
In terms of technical analysis, the trend is short term bullish as troughs and highs are getting higher and higher. Nevertheless, the risk/return ratio no longer favours buying at current levels since the price of gold is now evolving close to two major resistances: the symbolic threshold of $1900 and the downward slant that passes through the peaks of August and November.
In the event of a pullback, it will be preferable to wait for a reversal under the short-term upward slant that passes through the lows of early December and Tuesday before anticipating a resumption of the downward trend.
However, if U.S. legislators agree on a new $900 billion package, the odds are in favor of a continuation of the uptrend.
If the two resistances are overcome, it would be a major bullish signal in favor of a resumption of the underlying uptrend. The outlook would become bullish up to $2,000.
Source Ig.com
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