Gold prices are at a critical juncture as they continue to trade in between the 21-day and 50-day Simple Moving Averages (SMA). As of early Tuesday morning, gold’s price was already in the red. It was unable to recapture the key resistance level of $3,250 for a third time. Traders are anxiously awaiting word on US trade talks. They’re seeking clues from Federal Reserve officials, as these might provide the market’s much needed fresh catalyst.
The market dynamics today say that gold buyers are up against the wall. They would have to overcome the short-term resistance level at $3,250 to get any closer to the 21-day SMA, currently at $3,289. If the sellers manage to push the price under the 50-day SMA, which is at $3,175 at present, they may initiate a long, strong sell-off. This decrease would likely lead prices to collapse all the way down to the $3,100 level.
Technical Analysis of Gold Prices
The metal is literally capped in a technical sense with moves higher severely obstructed by the backdrop. The 14-day Relative Strength Index (RSI) is currently trending just under the centerline at about 47.50. This indicates that there are still downside risks for the precious metal.
This perfect storm of pressure is exacerbated by long-awaited inflationary and recessionary pressures. Improved expectations for a ceasefire between Russia and Ukraine has gold prices retreating. Gold, after all, is historically considered a safe haven asset in periods of geopolitical turmoil.
Analysts say Trump’s sweeping tax-cut bill would add $3 trillion to $5 trillion to the nation’s $36.2 trillion in debt over the next decade,” – Reuters. These types of fiscal policies have had a clear impact on gold prices in the past, which typically drive investors towards safer assets.
Central Bank Activity and Demand Dynamics
Emerging economies continue to buy up gold at a record pace, putting even more pressure on the market. Central banks in China, India, and Turkey among others have amassed record levels of gold. World Gold Council data show that these institutions added a net 1,136 tonnes—worth an estimated $70 billion—to their reserves in 2022. This is the largest annual net purchase of gold on record.
This increasing central bank demand can help form a healthy backbone of support for gold prices, particularly during times of economic uncertainty. Nations are deepening their reserves and fast increasing their embrace of gold as an asset class. This would be an important step to take in order to remove some of the immediate upward pressure on prices.
Future Projections and Market Sentiment
Looking further forward, the next big target for gold prices is the declining trendline resistance located at $3,386. Reaching this ambitious target depends on first beating short-term resistance levels and making it safely through current market turbulence.
Ideally, gold prices should remain above the throwback support from the 50-day SMA. If they can, market analysts predict a quick retracement up to retest the 21-day simple moving average (SMA). If sellers can reclaim control and flip this support level in daily closings, it may catalyze a larger sell-off. This decrease can drop prices down to the April 10 low of $3,072.