Gold prices held steady near a 2.5-year low on Monday as a strong US dollar and major central banks took an aggressive stance on interest rates to rein in inflation. Analysts interpret the market and share their assumptions.
“It is very difficult to create a bullish situation for gold”
Spot gold was trading at $1,646.80, up 0.20% at press time. However, gold lost 1% at the beginning of the session. In this move, it saw $1,626.41, its lowest level since April 2020. U.S. gold futures fell 0.27% to $1,651. In the middle, the dollar index (DXY) has made a new high since 2002 on the strength of the British pound’s decline. City Index analyst Matt Simpson interprets the developments as follows:
Until the Fed and especially (other) central banks see a pivot following the Fed, it’s very difficult to create a bullish case for gold. However, once calm becomes a reality, the Fed will no longer rise. In that case, gold has a good chance of reclaiming its safe haven status.
Gold technical analysis: Downside momentum still intact
Market analyst Sagar Dua analyzes the technical outlook of gold in the following form. The gold price retraced most of the losses recorded in the Tokyo session. The precious metal fell sharply to $1,630.00. But he recovered well. This points to the formation of a buying queue, which indicates a strong buying structure. The yellow metal is attempting to slide into the previous stable area located in the $1,640.00-1,649.06 narrow range.
On an hourly scale, gold prices are trying to hit the 20-period Exponential Moving Average (EMA) at $1,650.54. If the precious metal manages to break above the 20-EMA, it will find major roadblocks around the horizontal resistance placed at $1,654.41 from Sep 16. The Relative Strength Index (RSI) (14) oscillates in the 20.00-40.00 range. This suggests that the downside momentum is still intact.
“Bulls don’t want to see a breakout here”
Koindeks.com As you can follow, US inflation is at its highest levels in the last forty years. In addition, geopolitical concerns are increasing with the ongoing Russia-Ukraine war. However, market analyst Chris Kimble says gold bulls are still patiently waiting for a big profit. The analyst looks at the long-term monthly line chart of the gold price. On top of that, it provides a macro-technical look at the precious metal.
As you can see, the yellow metal has been traversing horizontally (shade blue) for the past two years. This is reminiscent of the other two eras where gold saw a trading range breakout break and remained weak for years thereafter. Due to this, the recent weakness is adding to the bulls’ bulls. Gold is also testing the long-term trend reinforcement limit. This makes the price area even more valuable.
“The door is open for extra losses in the gold price”
Open interest on gold futures markets fell by about 1.6k contracts on Friday, following two consecutive days of pullbacks, according to CME Group’s preliminary information. The volume also acted accordingly. Accordingly, it rose for the fourth consecutive session. The increase this time was approximately 16.6 thousand contracts.
Gold’s strong decline below the $1,650 region on Friday comes amid rising open interest and volume, market analyst Pablo Piovano says. According to the analyst, this left the door open for the downtrend to continue. Assuming the analyst, the close target remains at $1,600.