Gold and silver have both rebounded today, along with equity markets. But after last week’s big falls, more pain could be on the way for gold bulls than gains this week. As we reported the possibility earlier last week, safe-haven gold continued to head lower despite widespread concerns over the outbreak of coronavirus. However, I didn’t think the metal would fall as much as it did on Friday. The fact that it did, means I must revise my expectations. So, while I still remain bullish on gold in the long term, I now think prices may go on to correct themselves for a while before starting to push higher again.
Last week’s weakness can be attributed partly to profit-taking after the metal’s recent sharp gains. Beyond that, I think there are concerns over demand for gold in its physical form, given what’s happening in gold’s largest consumer nation, China, right now, along with many other countries.
Central bank support might not be enough
Gold and silver have responded positively to speculation over further central bank action. The likes of the Fed and BOJ have come out in support for further loosening of monetary policy should the virus outbreak turn to a global pandemic. Yet gold has so far only managed a modest rebound, relative to Friday’s falls.
While in theory lower interest rates could be good news for gold, silver and indeed stocks, investors are wondering whether that will be enough to offset the prospects of a major supply-side shock.
Last week’s sell-off helped to create a bearish engulfing candle on the weekly time frame, suggesting the bears are now in control of price action. If I am reading this correctly, then gold bulls are the trapped group of investors. If so, their stops will be resting below last week’s low at $1563. That’s where I think gold is headed in the short-term
So, based on the above, here is a potential bearish trade opportunity on gold: