A run of enormous bear candles and increased volatility has been astounding traders who were looking to invest in gold as a traditional safe haven asset. On Monday, March 16, 2020 gold fell off the cliff. Why is gold not rallying and is it the end of an 18-month uptrend? Let’s take a closer look at Gold price analysis and watch a short video by Capital.com market strategist David Jones.
Gold price analysis: a short video guide to trade gold
Gold chart analysis: will the downward gold price movement continue or reverse?
Today, we continue to see massive volatility across all the financial markets with US stocks suffering their third-worst ever drop, major stock market indices – the Dow Jones, S&P 500 and FTSE 100 – plunging to their record lows, crude oil prices hitting below $30 a barrel for the first time since 2016.
Traditionally, in times of trouble gold tends to go up. However, at the start of this week we have witnessed an unprecedented picture of a hundred-dollar swing in gold price during 14 hours. Gold’s mini-crash started from $1,703 on March 7, which is gold’s best level in seven years, down to its three-month low of $1,469 on March 16, which is its worst level since mid-December.
So, what has been happening to the gold price? Looking back at the beginning of March, we saw the price of gold hitting its best levels for more than seven years, briefly trading above $1,700 per ounce.
Key highlights of Gold price analysis in March 2020
Massive volatility amid coronavirus threat
During the increased markets’ volatility driven by the coronavirus fears, its impact on the world’s economy and a threat of the global recession, gold is supposed to be seen as a safe haven.
However, what we see now is that people are selling gold. Whether to cover losses from trading on other markets, or due to concerns over physical demand as Covid-19 wreaks havoc on the world’s economy – whatever the reason, gold is seriously hit with traders abandoning the safe-haven asset.
The interest rate cut doesn’t help
Lately, we’ve seen the biggest interest rate cut from the US Federal reserve. The central bank slashed interest rates to zero as part of wide-ranging emergency intervention. This is considered the most dramatic step since the financial crisis of 2008 aimed to protect the US economy from the impact of the coronavirus outbreak.
Usually, the lower interest rates mean a weaker US dollar, which is usually good for the gold price rate. This time, the price of gold also moved slightly higher on the announcement, but it didn’t last long. Twenty minutes after the market opened, we saw a big hit in the price of gold.
Investors ‘dash for cash’
As coronavirus panic wiped trillions of dollars from the value of global markets, gold, as well as other commodities, stocks, and bonds could have become a victim of the so-called “dash for cash”. For that, investors stormed out of major asset classes and piled a record $136.9bn into cash by the end of last week.
Although gold is clearly under pressure and is now trading at its three-months lows, it is doing better than Silver, which went down to the worst levels in 10 years. However, what if we see the current dip as a trading opportunity for gold buyers?
Let's take a look at some big levels of Gold chart technical analysis, traders should watch closely.
Gold price analysis: market sentiment and latest forecasts
The question is, whether gold’s mini-crash continues, or will it bounce back to its upward trend? For now, the intraday volatility continues. On March 17, 2020 the daily range was $122, which is the fourth-largest high/low range ever on gold that more than doubles its Average True Range of $54.
Right now the bulls can’t get a handle on the sell-off. Momentum has taken a turn for the worse with the Relative Strength Index (RSI) hitting 30. This is the lowest level since August 2018, when gold started building a bull market that has been in place for 18 consecutive months.
Meanwhile, the Gold chart analysis shows that a drop below the most recent low of $1,445, where a lot of sell stops are resting, seems inevitable. It is possible we see gold returning to the long-term breakout level around $1,350 in the coming days. However, if gold bounces back above $1,575, the technical outlook could brighten.
The good thing is that when you choose to trade gold with contracts for difference (CFDs) it doesn’t matter whether your view of the gold price forecast is positive or negative. You can always try to profit from the future price fluctuations, regardless of their direction. Stay tuned to the latest Gold market news and trade gold CFDs with Capital.com.
Read more: Gold trading: how to invest in gold?
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.