Gold may be preparing for a sharp decline if the dollar index manages to strengthen its rally and continue its advance to prices it hasn’t seen for several years.
It was trading lower on Thursday after the market welcomed the measures announced by several central banks around the world, including the ECB and the BoE. Furthermore, the strength of the dollar drove gold into the bearish position.
The European Central Bank announced an emergency program to combat the coronavirus pandemic earlier in the day. It stated it would use € 750 billion to support the European economy.
According to the bank’s press release, the ECB will ensure that all sectors of the economy can benefit from favorable financial conditions that allow them to digest this shock.
The bank also explained that the package applies equally to families, companies, banks, and governments. The Governing Council will do everything needed within its mandate.
On the other hand, the Bank of England announced another rate cut and increased its bond purchase program to fight the impact of the coronavirus on the British economy.
The BoE stated that it was increasing its asset purchase program by £645 billion. The majority of this program will be used to purchase UK bonds.
Likewise, the bank announced that its primary interest rate fell from 0.25% to 0.10%.
The bank was very concerned about the impact of the virus. In its statement, BoE commented that the spread of Covid-19 and the measures being taken to contain the virus will lead to an economic shock that could be acute and large, but should be temporary.
On the day, the XAU/USD attempted to regain ground after Wednesday’s decline. Still, the metal found strong resistance at the 1,500 level earlier in the day. Gold could not even support prices and fell to 1,460.
At the moment, the XAU / USD is operating at 1,476.30, registering a decrease of 0.70% in the session. The chart is bearish with technical studies pointing lower and fundamentals pressing the metal to sell cheaper.
Gold may be preparing for a sharp drop if the rate of the dollar manages to strengthen its rally. And continues its progress to numbers it has not achieved in years.
At the moment, the bearish movement is being contained by the level of 1,450 that has been testing throughout the week.
According to the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University, the number of confirmed cases worldwide totaled nearly 230,000. Meanwhile, the number of deaths has already reached 9,325. Almost 85,000 people have recovered from the deadly virus.
However, the drama outside of China continues, with cases accelerating to alarming levels in the United States. The US has already surpassed 10,000 cases and is taking emergency measures.
In Europe, ultimately the situation is not improving, with Italy already adding more than 35 thousand cases, Spain reaching 17 thousand and Germany 14 thousand.
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