Uh oh. Gold is starting to find itself in a bit of a pickle again in trading this week, with price now falling below $4,100 today as sellers look to try and tighten their grip on the precious metal.
The setup for gold over the past few weeks has been defined by the range around $4,100 to $4,200 for the most part. And yesterday, we started to see price action invite a test of the downside range . Today, that very floor is now being threatened and buyers are surely starting to sweat now when you look at how things are playing out.
As things stand, the broader fundamental backdrop remains challenging for gold. While Treasury yields are not returning to multi-decade highs yet, they are still at elevated levels which are keeping a non-yielding asset like gold in a tough position. Then, you have the renewed surge in oil prices only adding to inflation worries and keeping expectations for further Fed tightening alive. That is not quite the combination that will do gold any good.
But even putting all of that aside, the technical picture itself is rather worrying.
Since the drop in late September, any recovery attempts in gold this month have been repeatedly capped around $4,200. The 100-day moving average (red line) also adds another layer in limiting any meaningful recovery, although we haven’t even seen buyers gather enough conviction to test that in recent weeks.
So, that leaves us with the more immediate concern now and that is the downside floor around the $4,100-17 region. We are seeing another test below $4,100 today and will it be a case of third time being the charm for sellers in breaking through?
A firm daily close well below $4,100 would leave the door open for a further decline towards the psychological $4,000 mark. And below that, the July low around $3,960 would be the next key downside target.
As for buyers, reclaiming $4,200 remains the most important step towards easing the immediate selling pressure. But with both key daily moving averages still sitting well above current prices, the broader technical outlook continues to favour sellers.
As such, I’d be more concerned about support giving way than betting on another rebound – at least for the time being.
This article was written by Justin Low at investinglive.com.
