Gold prices are treading a thin line in the short-run, battling to hold a three-week-long rising channel support. As traders in Asia react to the unfolding situation on Wednesday, gold looks to be probing waters below this important psychological support level. Depending on the forthcoming US economic data, the resulting impact on markets could set the direction of gold prices in the days to come.
Over the course of this week, gold’s action has pushed deeper into a consolidative phase for five straight trading days. Even though prices are still bouncing around in an increasingly well-established range, they’ve had a hard time building up any momentum. The 14-day Relative Strength Index (RSI) indicates that gold continues to hold above the midline, providing a cushion against potential declines. Traders are all in a bearish mood. The precious metal has clung to its ascending channel support heading into the highly-anticipated US GDP release.
Testing the Rising Channel Support
Looking at gold’s price action, it would require a close below the long-term rising trendline support at $3,351. If so, on a daily close basis, it would register definitely a downside break of the pattern of the rising channel. The market could be looking at a much longer correction. This might reintroduce the 21-day Simple Moving Average (SMA) at $3,224 in sight, potentially catalyzing more drops to the 50-day SMA at $3,075.
Market experts caution that gold needs to stay anchored above the key $3,300 support line. If it is unable to do that, it may soon put the $3,260 demand zone to test. Conversely, gold buyers are under pressure to establish a firm foothold above the channel support-turned-resistance at $3,351 to reignite the uptrend. If recovery is strong enough, focus could shift to higher targets of $3,400 and then test the record high at $3,500.
Influence of the US Dollar and Economic Indicators
Gold tends to track the negative correlation wealthily with USD on fluctuations. Lately, the USD has managed to hold its gains even as the tariff headlines hit the wires. Analysts highlight that a smaller-than-expected cooldown in US economic growth could offer temporary relief to broader markets and the USD. Even in such a bullish scenario, gold sellers would be free to take advantage of corrective downside moves.
The next Non-Farm Payrolls (NFP) data due will be very interesting for the markets. For them to know how US tariffs are impacting the labor market. Economic indicators such as these can reverse investor sentiment on a dime, sending gold prices rising and decreasing demand for the USD.
Central Banks Increasing Gold Reserves
In a broader context, central banks from emerging economies such as China, India, and Turkey are rapidly increasing their gold reserves. In 2022 alone, these countries’ central banks added 1,136 tonnes of gold worth about $70 billion to their reserves. There is a clear increasing demand for gold, as shown by this trend. Countries around the world are working to strengthen their fiscal foundations to address inflationary pressures and global economic uncertainty.
What these central banks do would determine whether or not gold has stable prices. So long as we are in a world where they continue to accumulate gold, it means in the long term they’re putting upward pressure on prices. This central bank activity stands in contrast to current market behavior among retail investors, who are carefully watching economic indicators before making significant moves.