Investors have witnessed wild swings in gold prices over the past few days. Specifically, on Monday they closed above the 21-day Simple Moving Average (SMA) at $3,313 for the first time since early May. The market is primed for the next big release of US Consumer Price Index (CPI) data. At the same time, gold is forming a short-term base beneath the $3,200 level and trading near one-week lows. This means the next inflation data will certainly have a strong hand in determining gold prices. Investors are looking forward to how this info will inform the market’s next move.
After a huge 3% drop for gold on Monday, fears of a recession have set in among investors. For today at least, it has managed to again save the $3,200 threshold. On Tuesday morning, it caught up with itself and consolidated as the US Dollar retreated across the board. Traders are mostly in a wait-and-see mode at this point. Their fingers are crossed as they look forward to the first high-impact CPI data.
Moreover, the 14-day Relative Strength Index (RSI) has flipped bearish. This marks the first time since early April that it has closed below the midline. This change in fortune for gold is a clear sign that market sentiment is changing. Yet, the bearish signal has been enough for traders to stop the bears and realize profits. They have been keenly awaiting further clues from this week’s US inflation figures.
Market analysts forecast a 2.4% increase in the headline year-on-year US CPI for April. This jump is on par with the record pace set in March. It’s very important that this upcoming data release be a time of transition. If the CPI is hotter than expected, gold prices could fall in response, potentially heading toward the 50-day SMA at $3,145. If inflation data comes in line with or below expectations, gold will likely continue to find its footing.
In Asian trading on Tuesday, gold showed new signs of life as the US Dollar retreated. Traders are watching to see what a US-China trade truce would mean. They’re throwing their chips into the pot on hopes for future easing measures from the Fed. Traders are taking profits on their long positions in USD as they position themselves ahead of the CPI release. This legislation has gone a long way to prevent any sort of gold price collapse.
As it stands, gold finds itself at an important crossroads. If it can achieve acceptance above the new resistance level of $3,311—previously the 21-day SMA—it could pave the way for a test of the falling trendline resistance at $3,430. If the gold price begins to reverse downward, main areas of support to note include the following. The round figure of $3,100 and the April 10 low of $3,072 are important levels to watch.