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Gold once again challenges $2000 per ounce

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Any real correction that many traders were anticipating might have come and gone, with market participants buying any reasonable dip in pricing. Last week’s single day decline of $117 seems to be the final cap on a shallow correction which resulted in gold retracing approximately 23% before finding support.

After trading to the new all-time record high of $2089 on Friday August 7, market participants moved pricing lower with the most active December 2020 futures contract closing at $2028. Although on Monday gold traded to a lower high, it had a slightly higher low setting up Tuesday’s dramatic fall from grace.

On Tuesday, August 11, gold futures opened at $2037 and then traded to an intraday low of $1912 before recovering and closing at $1946, resulting in a decline of almost $100. The following day gold would trade to an intraday low of $1875. It seemed this price point attracted an influx of market participants bidding the precious yellow metal higher resulting in gold closing at $1948, which was just above Tuesday’s closing price.

As we spoke about last week the dramatic selloff that occurred on Tuesday presented a unique opportunity for traders to once again bid gold pricing higher. It allowed those traders who had taken profits to reposition themselves from the long side. More importantly it gave some market participants a second chance to rebalance their portfolios with a heavier weight in gold after missing the recent dynamic run to a new all-time record high.

To put it bluntly, the fundamental factors which have been moving gold and silver prices dramatically higher are still in play. The speed at which we saw prices recover confirms the assumption by many analysts including myself that what we witness last week was simply profit-taking with no major change in the fundamental rationale that is at the core of this rally.

The global pandemic is still ravaging countries. According to the John Hopkins University & Medicine Coronavirus Resource Center globally there are now 21,761,813 individuals that have contracted the virus. Although the death rate seems to be leveling off global deaths now stand at just over three quarters of a million (776,751) lost souls.

The pandemic has forced the Federal Reserve along with other core central banks to maintain an extremely accommodative monetary policy with interest rates near zero and concurrently using quantitative easing as a primary tool to support economies worldwide.

Actions by the Federal Reserve are in conjunction with aid funded by the United States Treasury Department which now is in excess of $3 trillion. This does not include any additional aid that is currently needed. While the Congress is unable to break the stalemate and effectively agree upon the next aid package, it is acknowledged that without additional aid the millions of unemployed individuals in the United States will have to endure more financial hardship.

These factors are at the root cause of the recent strong decline in the U.S. dollar, and a primary factor that has moved gold pricing higher. Currently we have minor resistance at $2000 per ounce, with resistance at $2040, and major resistance at $2080. Our technical studies indicate that gold will once again challenge and surpass $2000 per ounce and could easily trade to a new all-time record high within the next two months.

Gary S. Wagner - Executive Producer