Gold Starts the Year Sharply Higher, Up Over 2%

05 Jan 2021 · 3rd Party Analysis

Gold Starts the Year Sharply Higher


In Summary

  • The yellow metal starts the year on a good note
  • Anticipation for key economic data

Gold is trading relatively higher in the first couple of days of 2021 and has been able to top a two-month high, reaching over $1,945. The last time gold traded above current levels was right before the release of the Pfizer-BioNTech vaccine news on Nov 9. The event triggered a sharp sell-off in the gold market, placing gold bugs in a short-term bearish trend which saw the precious metal drop by 10% to a low of $1,764 on Nov 30.

December-to-date was a strong period for gold as it managed to erase the losses in November, accumulated after the vaccine breakthrough. On Tuesday, gold is proving to be resilient as it hovers near Monday’s top around $1,945. The strong bullish breakout yesterday attracted more buyers and the yellow metal successfully pierced through the technical milestone, the 100-day moving average, while also exiting the ascending triangle formed in December. More importantly, gold broke out of the downtrend trading channel that started at the historical peak of $2,074 on Aug 7. On Monday, gold pierced through the long-term resistance level resting at $1,906 and even managed to close the daily candle above it.

Bitcoin now holds a 68% share of the total crypto market cap, boasting a valuation of $686 billion, zeroing in on Tesla, the EV company led by Elon Musk, which saw a record-shattering year and has a market valuation of $716 billion. Bitcoin is now bigger by valuation than Alibaba Group Holding, valued at $615 billion, and Warren Buffett’s Berkshire Hathaway, valued at $540 billion.

The US Economy Faces Difficulties

In the bullish camp, gold traders are now hopeful they could reach the next level which resides in the neighborhood of $1,965 to $1,970. The pair is also well above the 200-day moving average as well as the 50-day moving average, signs for a bullish trend. In contrast, if the area of $1,965 to $1,970 is reached, the range would present a double top opportunity for the bears and a chance for them to go short. Technical indicators such as the MACD and the RSI point to a solid climb for gold, which is seen as a sign that the asset is on its way to enter into overbought territory. However, given the dynamic nature of current macroeconomic events, gold is still vulnerable to short-term fluctuations that could swing the price both ways on an intraday level.

Such events are expected later in the week as the market anticipates the first FOMC meeting of 2021 set for Wednesday. The Fed will present an update and insights regarding the FOMC’s stance on monetary policy and the current state of the economy. The meeting is expected to have a volatile effect on gold alongside currencies. Thursday is scheduled for the release of the US initial jobless claims, expected to land at 800K, slightly higher than the previous figure of 787K. On Friday, the most important and monitored economic indicators will be released; the non-farm payrolls and the unemployment rate. Non-farm payrolls are expected to show 100K new jobs created for December, lower than the previous figure of 245K new jobs for November. Additionally, the unemployment rate is expected to remain unchanged at 6.7%.

Economic forecast for December indicates that the US economy is expected to stall as a result of the new surge of Covid-19 cases across the US, even after the country started the vaccine rollout. The vaccination goal for December in the US stood at 20 million doses, while Americans received just over 3 million doses of coronavirus vaccines.

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