Gold came under
some pressure yesterday amid the tech stocks rout. The good news is that we
haven’t experienced the same strong liquidation that we’ve seen in the past
weeks.
This might be due
to the change in context and positioning. We now have a Democratic Congress
which is going to restrain fiscal expansion and likely limit the rise in Treasury
yields. At the same time, we still have the war in Iran that is likely to keep
inflation expectations high.
The result is
lower real yields, especially with the rout in tech stocks weighing on growth
expectations and nominal yields.
The positioning in
gold is also much less crowded than at the start of the year. BofA’s FMS survey
had already shown in July that gold was the most undervalued since 2023, which
should provide further support for the precious metal.
The focus will now
be on the US-Iran situation and the Fed. If Trump decides to escalate the war, inflation
expectations would rise alongside weakening growth outlook, creating a
stagflationary environment. This is bullish for gold.
At the same time, if
we get a de-escalation, we could see a dovish repricing on easing inflation concerns,
which could also support gold in the short-term.
Today, we have the US NFP report. Soft data could lower rate hike
probabilities further and trigger a rally in gold. A hot report, on the other
hand, is unlikely to change much for the Fed, so a downward spike could be
quickly faded.
GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold (CFD contract) broke above
the key downward trendline and pulled back to retest it. The buyers will likely
continue to pile in around these levels, with a defined risk below the
trendline, to keep targeting new highs. The sellers, on the other hand, will
need to see the price breaking below the major upward trendline to open the
door for new lows.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we can
see that the minor support around the 4,080 level didn’t hold but the price
still bounced from the broken trendline. The buyers will likely want to see the
price rising back above the broken support zone to pile in for a rally into the
4,500 level. The sellers, on the other hand, will need the price to fall back
below the trendline to extend the pullback into the minor upward trendline around
the 3,960 level next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline defining yesterday’s pullback. The sellers will
likely lean on the trendline, with a defined risk above it, to keep targeting
the upward trendline. The buyers, on the other hand, will want to see the price
breaking higher to pile in for a rally into the 4,500 level next. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
Today we
conclude the week with the US NFP report and the University of Michigan
Consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.
