US gold prices are currently dropping off a cliff. This bearish streak was the fourth consecutive day as of early Thursday. The yellow metal is trading around the lowest point in a week, down below $3,250. The recent downward trend has been cause for concern again, raising worries among traders. This close below these critical support levels has turned their attention back towards the 61.8% Fibonacci support at $3,168.
On Tuesday of last week, gold prices jumped to a two-week high of $3,366. This increase followed a bounce off the Fibonacci support level of $3,168. The recent wave of bearish sentiment has spoiled the fun, at least in the short term. As the trading day progresses, analysts can’t wait to highlight one key headwind for gold. There would be strong resistance at the 50% Fibonacci, which is currently at $3,230.
Recent Market Trends
Adding to the macro backdrop is the current market landscape, which indicates that gold buyers have failed multiple times to defend a key demand zone at $3,295. This area includes the crossing of the 21-day Simple Moving Average (SMA). It coincides with the 38.2% Fibonacci retracement of April’s record rally. The collapse of this drivers’ demand area also shows a significant change in the market landscape, with sellers winning in the short term.
The short-term gold resistance is now set up around the $3,300 level. This level matches up with the 38.2% Fibonacci retracement level and a proven psychological level of support/resistance for traders. A close above this mark would be the first indication of an imminent bottom for gold prices. The swings traders are likely to be cautious, especially as the 50-day SMA approaches the crucial 50% Fibonacci support at $3,230.
Looking at the technicals, gold is due for breakout above the key psychological level of $3,350. Accounting for it is key to getting it back on its long-term increase. The 14-day RSI has dropped below the centerline, currently just above 49.50, confirming a loss of upward momentum.
Central Bank Purchases
Despite this current bearish trend, central banks from emerging economies are buying gold at record paces. Countries like China, India and Turkey have jumped in with both feet. In 2022 alone, central banks supplemented their reserves by around 1,136 tonnes of gold, worth around $70 billion.
This trend of accumulation among central banks is a huge reversal from the current market sentiment. As these institutions secure more gold, it raises questions about future demand and price stabilization in light of ongoing economic uncertainty.
“Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer.” – Fed Minutes
Looking Ahead
Traders today are more than ever sailing in turbulent seas. They’re watching to see if gold can turn around from the crucial floor zone at around $3,230. A successful recovery would likely have buyers retaking the 21-day SMA now set at $3,287. On the flip side, inability to hold this support would increase chances of further declines and downward pressure on gold prices.
Looking forward, analysts should keep an eye not only on technical indicators but on macroeconomic factors driving mood in the markets. Whether they’re able to for a sustained period will depend first and foremost on the gold prices’ relationship with a strengthening US dollar.