We recently discussed why gold is falling from a fundamental point of view. On Friday, there was a major event according to the theory of technical analysis. A 200-day simple moving average was broken through.
A simple 200-day moving average shows whether the price is higher or lower now than it was 200 days ago. It is generally accepted by consensus that this indicator represents a long-term trend. If the price is above 200 SMA (Simple Moving Average), it means that the market has a long-term bullish trend. If the price is below the SMA, the trend becomes bearish.
From the technical analysis (TA) perspective, there is still an important point. Often the price only touches the SMA and bounces back. Traders in TA therefore make sure that the daylight candle does not just cross the moving average, but closes above or below it. This is what happened at the trades on Friday.
The more conservative supporters of TA are also waiting for 2 confirmation. That is, they want to make sure that the daylight candle on Monday will also be closed below 200 SMA. If this happens, it will be a 100% strongest bearish signal for them.
Many of our subscribers will say that technical analysis is nonsense and they do not use it personally in their decisions. But, in this case, they will be only partly right.
Why? The fact is that the 200 SMA indicator is specifically monitored by all major market players. In many funds, the rules prohibit opening new long positions if the price falls below 200 SMA. And other funds are aware of this. This means that the pessimism in the gold metal market is starting to rise sharply.
Why does gold fall?
There is only one reason for this. Traditionally, gold metal is bought when there is tension in the world. The COVID-19 pandemic has brought enormous tension. Now everybody is simply over-optimistic about the good news about several vaccines coming to the market at once. This means that the demand for gold, as a protective asset, has fallen sharply.
But there is one more catch! The fact is that gold is also growing in cases where central banks are printing money. So far, there is no reason to think that the printing press will stop. That means that at any point in time when the majority of the players in the market reach this fact (that having a vaccine will not stop printing new money), the trend can turn up again, going to new highs.
What awaits us today?
02.00 China Business Activity Index for Services in November
11.30 Statement by ECB Head C. Lagarde
14.00 Germany consumer price index for November
15.45 Chicago PMI Index in the USA for November
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