Gold prices (XAU/USD) kept falling throughout the Asian trading session with weakness extending to a fourth consecutive day. This drop represents a major correction from their recent peaks. The market was understandably jittery in the face of such macroeconomic news paired with major geopolitical turmoil. Consequently, gold fell to a daily low range of $4,331 $4,330, demonstrating investors’ risk-averse mood.
Warnings of a long U.S. government shutdown are starting to ring. This development is increasingly hitting the economic outlook and providing an overall supportive environment for gold. Analysts say that these anxieties have created a perfect storm that stands to benefit safe-haven assets, such as gold. The potential for economic disruption typically drives investors toward gold, perceived as a stable store of value during uncertain times.
While these concerns are monumental, there’s more afoot. Dovish Federal Reserve expectations are further adding fuel to dollar’s decline. This relevant context has largely prevented the most massive USD appreciation ever seen from materializing and indirectly underpinned gold prices. Another area where gold has struggled to maintain its momentum in the most recent uptrend is above $4,375 to $4,380. The technical factors surrounding this market provide sound underlying support.
Even the daily Relative Strength Index (RSI) for gold is clocking in at unprecedentedly overbought levels. This would indicate that the bullish trend may be losing steam. This pattern has led seasoned market participants to a conclusion that gold has a hard time holding above the $4,375 to $4,380 area. Perhaps this trend is already showing the first signs of bullish fatigue. A move under the $4,330 level could create value buying. While this dip is welcome, it could pave the way to an even bigger plunge if prices proceed to drop.
At the same time, global risk sentiment seems to be supported by positive overtures of de-escalation from the current U.S.-China trade skirmish. These advancements have largely taken the wind out of gold’s attractiveness as a safe-haven investment. Traders are on edge as the market digests these confusing news. They’re positioned for any change in sentiment that might drive gold prices.
Going forward, a clear break above the $4,400 mark would be a notable new breakout for gold. Such a shift would likely pave the way for an extension of the well-established uptrend observed over the past two months. A convincing breach under the $4,330 level would likely set off some technical selling. This would of course make gold even more vulnerable and accelerate its corrective decline.
Traders are preparing for next week’s two-day Federal Open Market Committee (FOMC) policy meeting which begins next Tuesday. Markets players are very much aware that this meeting has the potential to dramatically shake things up. The result of this meeting may well determine whether investor sentiment stays bullish or becomes bearish. These factors will determine where gold prices go in the short term.