This builds from the technical position from yesterday here: Gold fails to find that additional spark from US inflation data
As mentioned then, one of the potential plays for gold was:
“With price action stalling in the past few days, the buying momentum is starting to run out of oomph. If we do see a break back below the 100-hour moving average (red line), that could signal further downside to around $4,325 with plenty of scope for a further retreat amid a lack of other buying catalysts for the time being. In short, buyers are still looking poised but have to do more before they run out of steam and lose some near-term control – which could lead to a bit of a retreat in the latter stages this week.”
That seems to taking shape with the drop now taking gold to test the 10 August lows $4,313-20 region. But in the bigger picture, the break below the 100-hour moving average (red line) is the most crucial thing. That now sees the near-term bias switch from being more bullish to more neutral instead.
[Gold (XAU/USD) hourly chart]
So, what’s next for the precious metal?
Buyers have had a good run last week to break back above $4,200 on a technical break. However, the buying momentum looks to stall amid a lack of further positive developments from the US-Iran conflict as well as sellers defending the 100-day moving average.
That now sees some near-term exhaustion creep in as seen with the hourly chart above.
While there is some minor support in the $4,310-25 level, I wouldn’t pin that as being a key technical chokehold for gold prices looking to the end of this week and also for next week.
The battle now turns to whether gold will push back to retest its 100-hour moving average (red line) or fall to test further downside at the 200-hour moving average (blue line) instead.
A push back to the upside and break will invite another test of the 100-day moving average, seen at $4,386 currently.
Meanwhile, a renewed downside test and break of the 200-hour moving average leaves plenty of room for gold to track back towards $4,200-25. And on a break of that, we could see a quick return towards $4,000 next. That should US-Iran developments keep as it is and underpin a more hawkish outlook for the Fed i.e. higher yields.
This article was written by Justin Low at investinglive.com.