Gold Price Forecast: New Trend Lower is Forming

Gold prices are have fallen for three days in succession now and mid-week trade sees the precious metal lower at $1708. Analyst and technical forecaster Richard Perry of Hantec Markets says there is a risk gold shifts into a near-term downtrend.

With broad risk appetite turning positive in recent sessions, we have seen gold slipping lower.

The positive near term outlook been gradually replaced by a corrective one. The support of a three week uptrend was decisively broken by a strong negative candlestick yesterday.

This is the third decisive negative move in the past seven completed sessions and is ushering in near term weakness which is continuing today.

With these successive negative sessions, a new trend lower is forming, whilst momentum indicators have become corrective.

The RSI is below 50 this morning (at least for now) which if closes below, would be the first time in eight weeks.

Coupled with MACD and Stochastics accelerating lower, the supports are under pressure.

An old pivot at $1702 has lost its support and resistance traits in recent weeks, but will be seen as a gauge for sentiment now. Gold trading back in the $1600s would be a considerable disappointment in the wake of the attempt to break to multi-year highs.

Next real support is $1690 and then $1681 and reaction around those will determine whether the market has momentum for the key medium term support band $1660/$1668. The near term importance of resistance $1735/$1740 is growing.

Can Heightened Geopolitical Risks Support Gold

As has so often been the case in recent weeks, unrestrained hope of economic recovery that comes with a vaccine is short-lived.

Traction in the breakouts for risk appetite is difficult to maintain as markets always have a “but” as a restraining caveat.

COVID-19 vaccine hopes and talk of more stimulus from Japan are helping to hold a degree of positive market sentiment, but the prospect of US sanctions on China are looming like dark clouds on the horizon.

The US is opposed to China extending the security legislation in Hong Kong.

Sanctions are being considered which would threaten Hong Kong’s status as a financial hub and would significantly ramp up tensions between the two economic superpowers of the world.

According to President Trump, the US is doing something and will announce more at the end of the week. Subsequently, whilst equities are still climbing slightly today, there is a more mixed outlook for risk today.

US Treasury yields are ticking lower, whilst the dollar is clawing back some of yesterday’s losses.

The safe haven yen is also regaining some lost ground on higher risk cross currencies, whilst oil is giving back some recent gains too.

For now these moves are only slight, but if the US pushes hard for sanctions on China, it would be something to really drag on market sentiment towards the end of the week.