So far this week, gold is struggling to build on last week’s rebound with prices slipping back towards $4,330 today. The market continues to digest a more hawkish Fed and the prospect of interest rates staying higher for longer and that is weighing slightly on the precious metal.
Even as the bond market is calmer this week and risk sentiment is picking up, gold is still moving with caution as the overall rates backdrop remains an obvious headwind for the non-yielding metal.
The macro story may capture some of the headlines to start the week but I would argue that the technical story is just as interesting.
On the hourly chart, gold has spent the past few sessions getting increasingly compressed around its 100-hour (red line) and 200-hour (blue line) moving averages.
Buyers tried to make a run to the upside at some point last week, but the move fell short of getting past $4,400. That is leading to price action being more contained and now repeatedly crossing and testing the two moving averages around the $4,330 to $4,360 region. It suggests that neither buyers nor sellers have really been able to establish much near-term control.
But with the latest drop back below the confluence of the key moving averages, perhaps there is scope to push to the downside in the session ahead for gold prices.
That being said, the bigger picture on the daily chart arguably carries more weight.
After the attempted break lower last week, the rebound on Thursday and Friday saw gold invalidate the technical drop with a push back above both the 100-day moving average (red line) and 50.0 Fib retracement level of the swing higher from July to September.
Now, both of those key levels are coming back into focus once again. The former lies at $4,316 with the latter sitting around $4,328 and that arguably puts some focus to the region around $4,300 to $4,330 in terms of bids and key support levels for gold. That will be the zone that I’d be watching at the moment.
A sustained break below that would weaken the recovery structure and expose the 61.8 Fib retracement near $4,241 next. That also corresponds with the recent swing low from last week, giving it more technical significance than just the Fib level alone.
As for any upside rebound, I’d be more convinced if gold can firmly clear the $4,400 level. That will then allow the technical picture to look more constructive again, before eyeing $4,500 to $4,525 as the next hurdle.
For now though, gold isn’t exactly breaking down. However, the inability to hold its recent rebound is also somewhat telling.
With the Fed keeping markets focused on the possibility of further tightening and geopolitical issues still very much in the mix, the battle around $4,300 to $4,330 could determine whether this is simply another consolidation phase or the start of a deeper retracement.
This article was written by Justin Low at investinglive.com.