It’s squeaky bum time for gold traders as we start to get into a rather crucial and tense trading period in the second half of this week. The precious metal is already looking vulnerable, barely holding above $4,000 this week as we approach some key risk events for markets later today.
There are a few things weighing on gold price at the moment, with the bond market being arguably the biggest concern. 10-year Treasury yields are back above 5%, while the dollar is holding near a two-week high. Neither is particularly helpful for gold, especially when traders are already having to contend with plenty of uncertainty elsewhere.
In that lieu, the Fed decision later today could add more pressure to gold. While the central bank is widely expected to keep interest rates unchanged, traders will be watching closely for any signals of another rate hike in December instead. And a more hawkish message could very well send Treasury yields and the dollar higher, leaving gold exposed to a deeper selloff.
Besides that, there is the broader risk mood to consider too.
In the past two weeks, we’ve already seen cracks starting to emerge in the AI trade. And with Microsoft and Alphabet earnings coming up, investors will be looking for reassurance that all the massive spending is actually starting to pay off.
Typically, you would expect a selloff in equities to benefit gold through safe-haven demand. But if things get messy enough, margin calls and forced liquidation could see traders opting to abandon their structurally long gold positions i.e. sell gold to raise cash instead.
The technical picture is also not exactly all too encouraging. Gold is trading around $4,030 at the moment, with the $4,000 mark remaining the crucial support level to watch.
A firm break below that puts the June to July lows around $3,940-60 in focus, before potentially opening the door towards $3,900 next. The 100-week moving average around $3,871 will also be another key downside level to watch on any broader selloff in the precious metal.
As for the upside, there is much work to be done on the part of buyers. They need to reclaim the $4,100 level first, followed by the $4,200-20 region. Then, the 100-day moving average (red line) at around $4,218 remains another important hurdle further up.
For now, much will depend on how the bond market reacts to the Fed and whether the broader risk mood deteriorates further. If Treasury yields and the dollar push higher while equities come under pressure, gold may very well struggle to keep its footing above $4,000.
This article was written by Justin Low at investinglive.com.