On Wednesday, gold prices were under clear pressure and almost broke below that vital $4,000 pivot. Yet, they made a swift recovery and are currently sitting near $4,050. Market analysts have emphasized that this rebound, albeit temporary, takes some pressure off. Nonetheless, underlying economic trends continue to present dangers to XAU/USD.
Based on the last trading session, we learned that gold has found safety net support levels at $4,000.00, $3,986.45 and $3,972.10. While these levels can offer some protection from further downside, there is still a chance for a bearish break. Resistance levels for gold prices were indicated at $4,061.20, $4,085.70, and $4,110.00. The interaction among these levels will be important for bulls and bears alike watching gold’s strength.
From a technical perspective on the daily chart, gold has seen a rebound from a bullish 20 Simple Moving Average (SMA). The 100 and 200 SMAs are still keeping bullish slopes much deeper down than the shorter 20 SMA. This major divergence points out that despite the bounce, the trend remains in question. For now, the yellow metal price XAU/USD is struggling around the bullish 100 SMA. At the same time, the 20 SMA is accreting bearish force over the market, establishing resistance near $4,025.
Adding to the uncertainty in gold prices are market supply-demand imbalances, increasingly driven by geopolitical interests. The changing course of the US-China trade relationship is keeping a thumb on market sentiment right now. This, in turn, determines the trend of the US dollar and gold prices. What’s more, recent UK economic data has made the picture even more confusing for gold traders.
Sandwiched between these two releases, in September the UK Consumer Price Index (CPI) increased by only 3.8% YoY, under the expected figure of 4.0%. It’s worth noting that core annual CPI edged down marginally, rising by 3.5%. This is down from the last rate of 3.6% and under the market’s expectation of 3.7%. Inflation expectations are already pretty sensitive given the unexpectedness of this data. That might cause investors to start to look at gold as an inflation hedge again.
From a fundamental perspective, XAU/USD risks deeper losses ahead. That’s particularly true if it’s unable to hold on to its moves above the $4,000 level. The technical indicators point to a market getting close to oversold territory. Their unsteady superlative strength and longevity skews the risk toward the downside. Gold traders continue to play it close to the vest as they work through this convoluted set of market conditions.