After a big jump, gold prices dropped on Tuesday. That recent spike had vaulted the precious metal past the $3,750 threshold. Traders are hungry to cash in on early gains. They’ve been particularly attentive to some major new economic data and a consequential speech made last week by the Chairman of the US Federal Reserve, Jerome Powell. The market is now closely monitoring the upcoming S&P Global preliminary US Manufacturing and Services PMI data for cues on future price movements.
The current rally in gold prices had been persistent, with the metal setting multiple records and generating monumental buzz. On the surface, this most recent pullback looks like an early phase of profit-taking by traders who’ve made a lot of money in this long-term bullish cycle. As participants move in to find value, or adopt more cautious strategies, market dynamics will change, resulting in gold’s path over the next few days.
Market Dynamics and Profit-Taking
Gold traders are uncertain about what to do next as they adjust to this unprecedented market environment. After ripping to record highs, profit-taking is to be expected, particularly as traders square their books heading into next week’s major economic indicators. Later this week, S&P Global will release its preliminary US Manufacturing and Services PMI data. This information will give us a better picture of the health of the economy and likely affect gold prices.
Investors are bracing for spillover effects to economic activity. Lastly, they see a downward pull from the Services PMI, forecasting a fall to 53.9 from 54.5 last month. A weaker services sector would change the sentiment picture and weigh heavily on gold’s safe-haven allure. In this context, traders are weighing their decisions carefully, contemplating whether to lock in profits or continue holding onto their positions.
As the market recalibrates, early technical support for gold lies near the $3,700 level. This level is an important target point for short sellers to watch if they are looking for signs of a rebound. If prices of the yellow metal drop below this mark, additional support is likely to be found near yesterday’s low at $3,684. These levels are more than just round numbers and will almost certainly be key levels in deciding on gold’s immediate fate.
Key Price Levels to Watch
The supply and demand factors driving gold prices depend largely on a few key technical levels that market participants are watching carefully. Like we said above, the first level of support at $3,700 acts as a major barometer. If prices manage to blast above this point, focus would immediately shift to $3,684. This bottom could provide firm footing for those buyers looking to jump back into the market.
A sustained move past this psychological barrier could pave the way for gold to test higher resistance levels, including the significant $3,800 mark. Such a move would undoubtedly trigger even more buying interest as momentum swung upward, and open the door to new record highs.
Gold likely holds the bigger downside. In turn, prospective buyers might look for comfort at the $3,650 psychological threshold, acting as a floor. How these support and resistance levels interact with one another will be pivotal as traders play the battle between bulls and bears in a volatile market environment.
Anticipation of Powell’s Speech
Just to add another layer of uncertainty to the market is the expected language from Federal Reserve Chairman Jerome Powell. His remarks are highly awaited as they could offer insight into the Fed’s monetary policy direction and its implications for inflation and economic growth. Any indication as to the timing and scale of future interest rate increases would move the gold market in a big way.
Usually such dovish comments from Powell would increase gold’s attractiveness as a hedge against inflation and economic turbulence. Strong, hawkish Fed tones can reignite the selling pressure on gold. As investors prepare for escalating interest rates, these discussions lead them to begin repositioning their portfolios.
Traders are getting ready for this pivotal moment. For one, they’ll be looking at how Powell’s remarks line up with what all the key economic indicators and market sentiment are saying. In the short run, economic data and Powell’s commentary will be the key factors in gold’s price direction. They will certainly affect its course over the medium term.