Death Cross Emerges as November Low Gives Out

Gold Price Talking Points

The price of gold attempts to recover from a six-day losing streak as it bounces fresh monthly low ($1761), but a ‘death cross’ formation appears to have taken shape as the 50-Day SMA ($1851) crosses below the 200-Day SMA ($1857).

Gold Price Forecast: Death Cross Emerges as November Low Gives Out

The price of gold takes out the November low ($1765) as it extends the series of lower highs and low from earlier this week, and the weakness in the precious metal may continue to coincide with the rise in longer-dated Treasury yields even as the spread between 2-year and 10-year maturities has widened substantially over the last few weeks.

At the same time, a ‘death cross’ formation has emerged amid the flattening slopes in the 50 and 200 Day moving averages, and the decline from the record high ($2075) appears to be a shift in market behavior rather than an exhaustion in the broader trend as the low interest rate environment no longer provides a backstop for bullion.

In turn, the price of gold now faces a greater risk of giving back the advance from the June 2020 low ($1671) even though the Federal Reserve stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month,” and the precious metal may remain under pressure ahead of the next Federal Open Market Committee (FOMC) interest rate decision on March 17 as the central bank appears to be in no rush to alter the path for monetary policy.

With that said, a further rise in longer-dated US Treasury yields may undermine the recent rebound in the price of gold as bullion no longer exhibits the bullish price action from 2020, and the Relative Strength Index (RSI) may indicate a further decline in gold prices if the oscillator crosses below 30 and pushes into oversold territory.

Gold Price Daily Chart

Source: Trading View

  • Keep in mind, the price of gold pushed to fresh yearly highs throughout the first half 2020, with the bullish price action also taking shape in August as the precious metal tagged a new record high ($2075).
  • However, the bullish behavior failed to materialize in September as the price of gold traded below the 50-Day SMA ($1851) for the first time since June, with developments in the Relative Strength Index (RSI) negating the wedge/triangle formation established in August as the oscillator slipped to its lowest level since March.
  • The RSI dipped into oversold territory in November for the first time since 2018, with the correction from the record high ($2075) indicating a potential shift in market behavior as the price of gold takes out the November low ($1765).
  • In turn, the V-shape recoverythat materialized ahead of the July low ($1758) may continue to unravel as a ‘death cross’ formation takes shape in 2021, and the RSI may show the bearish momentum gathering pace if the oscillator crosses below 30 and pushes into oversold territory like the behavior seen in November.
  • Need a close below the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement) to bring the $1690 (61.8% retracement) to $1695 (61.8% expansion) region on the radar, with the next area of interest coming in around $1670 (50% expansion), which largely lines up with the June 2020 low ($1671).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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