Gold has been used throughout history as a medium of exchange and a reliable and stable store of value. Amid a dynamic market, the precious metal is now fighting one of its fiercest resistances yet, about $3,350. As traders weigh what’s priced into the market and look ahead to major economic releases, gold’s strength continues to be a point of emphasis for the market. The next few days may prove crucial as the market awaits the release of US preliminary PMI data and Federal Reserve Chair Jerome Powell’s speech at Jackson Hole.
Gold prices bounced off $3,311 for three-week lows struck during Thursday’s Asian session in the immediate aftermath of the CPI release. Even with this counter-rebound, gold failed again at the all-important resistance at $3,350. This zone serves as a confluent area established by the 21-day Simple Moving Average (SMA) and the 50-day SMA. In order for this bullish momentum to build any real traction, buyers need to clear this resistance decisively or a near-term bearish bias could continue.
Current Market Trends
Seen in the context of recent price action across the gold market—a period marked by pronounced lack of directional bias—this is significant. A look at the daily chart shows the 14-day Relative Strength Index (RSI) is stuck around the 50 handle. This shift of trade represents uncertainty among traders. Analysts point out that gold continues to be trapped in a well-known range, leaving the outlook for its future direction uncertain.
With gold facing hefty resistance, it’s important to know where potential targets lie should prices break out. Then buyers would target fresh bullish goals if they successfully break above $3,350. The next important resistance levels to keep an eye on are last week’s high at $3,375 and the psychological level at $3,400. Sellers are very much seeking a consistent downtrend. In order to do this, they have to form a solid higher-low above the 100-day SMA at $3,314.
Despite these stabilising factors at play, the market continues to be sensitive to external factors that can affect gold prices. The US preliminary PMI data due Tuesday will likely set the tone for direction across USD markets. This is just one week before Powell’s speech during the Jackson Hole economic summit on Friday. For investors, these are key developments to watch, as they could have profound implications for gold prices.
Central Banks Increasing Reserves
Set against these trends in the unpredictable gold market, central banks in emerging economies are in a race to build their gold reserves. Countries like China, India, and Turkey have added massively to their positions over the last few months. According to the World Gold Council, central banks around the world pulled off a historical reversal in 2022. They bought 1,136 additional tonnes of gold, worth an estimated $70 billion, to their reserves. It would be the largest annual net purchase of gold on record.
Central banks appear to be getting serious about gold again. This strategic decision not only allows them to diversify their assets, but provides a hedge against economic uncertainties. This new demand for gold by institutional investors is another wild card in market dynamics and is helping to drive up gold prices.
Though recent resistance levels have recently been tested, market analysts are generally bullish on gold’s long-term outlook. Gold has been exceptionally resistant in times of financial strain. This unique property has made it a go-to asset for central banks looking to diversify and bolster their reserves.
Technical Analysis
Looking at the technical indicators, we see a series of conflicting signals for gold traders. The recent Bear Cross, as confirmed by the 21-day SMA closing below the 50-day SMA, indicates possible bearish momentum. This dramatic turn of events serves to highlight the need to pay attention to price movement around important levels. If sellers manage to drive prices under key support levels, such as the July 31 low at $3,274, they may spark a rapid crash downwards. This could even set the stage to test the psychological barrier at $3,250 if they test the July 30 low at $3,268 first.
If buyers manage to retake resistance at $3,350, that would be the first obvious indication that momentum has changed. Traders will be itching to take advantage of this shift. In practice, we find that this is the decisive point for investors. At the same time, they’re looking at the risks and rewards more closely before deciding to trade in gold.