Gold’s mega rally faces $2,000 hurdle, but for how long?

Gold's rally has halted just below $2,000 an ounce partly due to fierce technical resistance, but an eventual break above that level is likely, freeing prices for more record highs, technical analysts said.

The gold price has surged 30 per cent this year to an all-time peak around $1,975 an ounce and is one of 2020's best-performing assets.

The rally was driven by a belief that gold will hold its value better than other assets as fallout from COVID-19 ripples through the global economy.

Central bank stimulus has pushed inflation-adjusted U.S. bond yields to record lows, making non-yielding gold more attractive, and the dollar has weakened sharply, making bullion cheaper for buyers with other currencies.

The never-before-reached $2,000-an-ounce mark is a major psychological resistance level, with gold's 49-year trend channel resting just below it at $1,983, said Commerzbank technical analyst Karen Jones.

Only an end-of-month or, better yet, end-of-quarter close above these levels will signal a break from the channel, she said.

“Tighten your stops . . . unless the top of my range is taken out in a convincing manner . . . upside from here is marginal.”

Technical analysts seek patterns and signals in price charts which allow them to predict and interpret moves. Traders and automated trading systems also take prompts from technical signals.

Because gold's rally has been so fast, a downward correction is likely and could be brutal, analysts said, before the market attempts another stab higher.

Early support is coming in around its 20-day moving average, at $1,875, and the bottom of its four-month uptrend, around $1,830.