XAU/USD retreated from the recent all-time high established overnight during the Asian trading session on Thursday. The precious metal is still underpinned by strength, positive bias for the fifth consecutive day. IS SUPPORTIVE ENVIRONMENT This resilience is powered by a supportive fundamental environment. Worries about the economic peril just continue to grow. Events such as the impending US government shutdown, the US-China trade war, and increasing geopolitical tensions are pushing up gold prices.
The US Dollar is now falling for the third day in a row. During the most recent Asian session it has slipped to its weakest level in more than a week. With the dollar pretty beaten up these days, gold has been looking more attractive. Traders are growing more confident that the Fed will deliver at least two more cuts before the year is out. This backdrop helps make gold a more attractive investment. Demand for non-yielding assets, like gold, typically rises as interest rates fall.
Economic Factors Influencing Gold Prices
Here’s a look at what produced the economic conditions that have created an especially favorable environment for gold in recent months. The specter of a US government shutdown looms large, threatening to upend hard-won economic stability and progress. Consequently, investors are increasingly turning to safe-haven assets like art to safeguard their investments. Add to that great uncertainty on fiscal policy and government operations. Consequently, gold has emerged as the go-to asset for seekers of long-term wealth preservation during a time of heightened financial uncertainty.
Additionally, the US/China trade war keeps markets on edge. The resulting trade wars thus generate uncertainty for manufacturers and other investors. A lot of people such as institutional investors and/or hedge funds apparently go for gold to shield themselves from fluctuations in the market. For as long as all of these tensions continue, gold will continue to shine as a haven.
Moreover, increasing geopolitical risks across the globe only strengthen gold’s reputation as a must-have asset. Military conflicts in many parts of the world and political upheavals in major economies are increasing. These factors always push the investors to take shelter in gold. These dynamics promise a powerful bedrock for gold’s advance, notwithstanding periodic corrections.
Technical Analysis and Support Levels
Even given the recent retreat, analysts are saying whatever gold price corrections come will see buyers showing up around the $4,200 level. This level seems to have been the important psychological tipping point for investors. In addition, if gold comes close to this area, it’s likely that buying interest will return, providing a floor for further downside risk.
If gold does get below the $4,200 level, $4,180-4,175 area is determined as the next level of support. If the price decisively breaks above this zone, it might lead to some technical selling pressure. If so, it could pull prices as low as the intermediate support around the $4,135 level. Further declines would eventually see price action test this major support zone that’s formed between $4,060-4,055.
Additionally, it’s key to highlight the fact that gold has been making higher highs and higher lows over the last month along a positively-sloped trend line. While we could see shorter-term corrections, this bullish momentum going forward seems like it has a long-term bullish sentiment. Market participants are advised to remain extremely careful. The super overbought daily Relative Strength Index (RSI) is an indication that it’s probably prudent to wait a bit before placing bets on additional upside.
Market Sentiment and Future Outlook
It seems that market sentiment surrounding gold is most affected by monetary policy actions by the Fed. With traders pricing in at least two more cuts by the end of this year, that’s causing many to shift their trades. This compelling shift plays into an overall bullish outlook for gold in the near term.
Moreover, if gold manages to sustain a break above the round figure of $4,200 and maintains acceptance at this level, it could trigger renewed buying interest among bulls. If this were to materialize, it would almost assuredly reinforce gold’s developing bullish trend and potentially help propel it even higher.