Gold prices took a noticeable step back on Friday after coming close to five-week highs earlier in the week. On Thursday, the precious metal jumped to an all-time high of $3,423. It has since retreated as traders book profits ahead of major U.S. consumer inflation figures. This occurs against a backdrop of a historically strong, or bullish U.S. Dollar, which especially has affected gold’s performance.
Gold’s technical outlook is still bullish in the short term, highlighted by a bullish crossover confirmed earlier this week. The 21-day Simple Moving Average (SMA) crossed above the 50-day SMA on Monday, an important bullish signal. Furthermore, the 14-day Relative Strength Index (RSI) is currently flirting with the overbought 60 level. That could mean that gold still has some momentum to make more gains.
Even with this rosy optimism, gold’s recent pullback underscores the tenuous tightrope traders are walking. After settled at $3,400 on Thursday, gold came under selling pressure that broke a three-day upward trend early Friday. Traders are now eyeing important resistance and support lines. The first major hurdle is at yesterday’s high of $3,423. Just over, old resistance hovers ominously around ~$3,440.
On the backfoot, downside support for gold can be found at $3,385, the low of the day before yesterday. Loss of support under this mark might trigger sellers to aim for the 21-day SMA at $3,366. Should gold’s price fall below this price, it will reach a significant support level. The first major support below the $3,600 level is the 50-day SMA, now at $3,349. Market participants are eagerly eyeing the June 16 high of $3,453. In fact, they see it as their most important point that could be tested in the near future.
This recent price movement comes as markets are betting on a September interest rate cut by the Federal Reserve. Investors are waiting with bated breath on all of these developments according to the CME Group’s Fed Watch Tool which currently reflects about 87% probability of a rate cut. This decision has the potential to raise the desire for gold as a safe-haven asset. Traders are looking forward to the next U.S. Personal Consumption Expenditures (PCE) inflation figures. This one piece of data would likely be the most influential in moving markets’ sentiment and gold prices higher.
Traders have started to re-position ahead of this key economic bellwether. For Gold to stay strong, it needs to hold above crucial support. A sustained break below $3,366 would indicate weakness and expose lower support levels, while maintaining above $3,400 could set the stage for further upside potential.