Gold has historically been at a crossroads in its trading cycle. It’s recently been dancing around the $4,100 threshold as it waits for big economic news to break. The precious metal’s recent trading pattern shows that it has failed to hold above a key resistance level. This collapse casts doubt on its near-term future. Retail traders are keeping a keen eye on US-China trade talks set to resume in Washington next week. They are closely watching the upcoming September inflation report from the United States, as each could heavily impact gold prices.
On Thursday, gold maybe tried to close decisively over this very critical 23.6% Fibonacci Retracement level at $4,129 but failed miserably. This failure has placed it at a watershed moment. Gold prices are expected to swing wildly depending on how the US-China trade talks pan out. Further inflation readings will be critical in guiding future market action. Each of these occurrences is likely to create market volatility and will likely have an outsized effect on overall market sentiment toward gold.
Technical Indicators Suggest Consolidation Phase
The technical indicators of the globe indicate therefore, that gold has entered a bottom building consolidation phase in and around the $4,100 region. As it stands, the 14-day Relative Strength Index (RSI) is still bullish, and the 21-day Simple Moving Average (SMA) is at $4,043. While these indicators certainly reflect a cautious optimism within the market, they share a glimpse toward some of the challenges that lie ahead.
On the downside, if selling pressure increases, gold may find strong support at the 38.2% Fibonacci level of $3,972, which would be a major support zone. If this support gives way, we could see a sharper correction. This issue compounds should gold fail to hold above the 23.6% Fibonacci resistance. Support pivots flip depending on the market with upside breakouts turning into downside resistance. Should gold begin to pick up serious momentum, traders will be looking at the key $4,300 level of resistance as the next key obstacle. Their all-time highs was $4,382, and that’s where they’ll be aiming.
Economic Factors Impacting Gold Prices
Gold prices tend to track well with several other economic indicators. It has been especially affected by US-China trade negotiations and U.S. inflation news.
Race to the bottom
Investors are monitoring the ongoing US-China trade negotiations, and for good reason. Their bullishness or bearishness can cause major volatility in gold prices. An encouraging result in these negotiations will lift the sagging investor sentiment and drive gold prices even higher.
Market participants are exceptionally nervous ahead of the next US inflation report. With such an independent green light from market leaders, this report has the potential to catalyze the next correction in gold prices. A potential upside surprise in the inflation figures, which would indicate less need for a Fed pivot, could depress gold demand. Conversely, softer CPI could bolster calls for earlier rate cuts from the Fed. Any such scenarios would almost certainly send gold’s record-setting rally on an encore run.
Additionally, surging US Treasury bond yields have made for a tougher pricing environment for gold. The surge in yields underscores both inflation fears and fears of a slowdown in growth. This makes the interaction between gold prices and other financial instruments more complicated.