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May 17, 2021

GOLD (XAU/USD)- Deep Dive Market Analysis

Frank Cabibi

Up until the last three months, gold had been under extreme bearish pressure. Lately, the precious metal has seen significant upside, but lots of resistance has caused long periods of consolidation. This is partly because of technical boundaries in the way have kept price down to minimal movement, but something big just happened to the gold market that could be a big bullish indicator. This deep dive will take us through the fundamentals and technicals of gold, and whether or not we should be expecting further gains this week or in the future.

Fundamental Analysis

COT Reports:

Since late March and early April, COT reports show an increase in non-commercial net long positions. This means that big money has been slowly staking themselves in this metal. Over the past week, gold positions from the non-commercial section worked up to 56% of portfolios long on gold while a mere 18% are short. Change in interest saw +11,967 contracts per 100 troy ounces in the past week with a total change in open interest was +28,352 as of Monday 5/17/2021.

Inflation:

Inflation of the USD will always cause a surge in demand for gold, and fears of a devaluing dollar from the trillions printed during the pandemic are finally catching up. What's different is that this time cryptos serve as a safe-haven for investors looking to get more bang for your buck during events where fiat falters. As crazy as it sounds, gold's competition is crypto now, and traders have to decide which they like better. Although crypto can provide higher percentage of returns, gold stands as a stable place to put your money.
Buying power on the USD has steeply decreased since March of this year, so many products and services are going up in price. As a result, investors eye the tangible metal that has historically held value.

Technical Analysis

XAU/USD 4H Chart

This chart shows gold on the 4H timeframe breaking above a long term falling trend line. This move above resistance is huge and could cause a serious surge in gold should price stay and close above it. Over the past three months, gold has had to break layers and layers of resistance from the staircase sell-off from August of 2020. Right now, $1850s is where investors can find some key support if gold has to retest highs. $1870s looks like the new level of resistance.

XAU/USD 1D Chart

Here is just a zoomed out gold chart on the 1D timeframe. Just to put into perspective how long this downtrend lasted makes this potential breakout a massive move. It is still impossible to tell where the candle will end up by the end of the day, but a close above this line looks likely. And if that is the case, momentum could take over, and this week could be a great one for gold.

Retail Sentiment

Retail Sentiment on Gold Highlighted in Yellow

The vast majority of retail traders are short gold. However, retail usually gets in way too early as they try to fight against the market's current moves. As long as COT reports show big money entering the market, gold will probably continue to rise.

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