Gold has been very much unloved in 2021, but are we in for a trend change? Or is today’s bounce another opportunity for the bears?
Another Short Opportunity on Gold?
Gold bears have been on quite a run in 2021, with the shiny metal falling over -12% from its 2020 close when it traded at its recent bottom around $1676/oz. level. This is a bit odd given that one of the main narratives driving the markets has been inflation fears, sparked by the massive stimulus measures from governments and central banks around the world, and that gold is traditionally thought of as a hedge against inflationary environments.
An argument could be made that with expectations of a global recovery from the covid pandemic coming this year thanks to vaccines, gold is a less attractive asset if no further shocks are coming to the financial system. Also, bitcoin’s massive rise and mainstream adoption fuels its store of value argument, possibly drawing traders and investors away from gold. Whatever the case may be, gold has been a massive underperformer this year, but are we now seeing signs that the price will stabilize?
From a price action perspective, we can see a potential double bottom pattern form at the $1675 handle, and today we saw the market break above the falling ‘highs’ pattern to trade above the $1700 major psychological handle. Is this technical setup enough to draw in more buyers, whether its profit takers or longer-term players buying on the massive dip?
Or is today’s bounce another opportunity for sellers to short the trend lower at a better price than yesterday? Well, $1750 has been a strong resistance area in March, and if that holds once again that could draw in sellers very quickly, especially if the main narratives of pandemic recovery & bitcoin adoption continue to run.
So for now, we’re leaning bearish on the precious metal, and we’re watching for a retest of the $1750 to see if bearish reversal patterns form before considering a short position.
If there is a strong upside break of that level, then it’s possible that a legit trend change may be in the works, especially if we see a scenario of US Dollar weakness and/or weakness in bitcoin. We may consider a long position, but likely a short-term one given the longer-term trends currently in play.
What do you guys think? Is this a buy or sell opportunity in gold? Are you looking at short-term or longer-term positions?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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