So far this week, gold is hanging on around the $4,000 mark as buyers are hoping to prevent a bigger breakdown on the charts. After spending much of October struggling to find its footing, gold price is in a very vulnerable spot as we approach some major risk events later this week. The stakes are high for buyers to try and keep a defense of the key psychological level.
Looking at the daily chart, gold continues to make lower highs through the month and is trading well below both its key daily moving averages. That reaffirms that sellers are in control with the recent rejection around $4,200 only adding to the downside pressure in the latest decline toward the $4,000 level.
At the same time, we’re also starting to see the June to Jule lows around $3,958-60 come into focus and a firm break below the $4,000 mark would put that level under immediate threat. And if broken, that could potentially open the door towards the 100-week moving average around $3,870.
So, what could be the potential trigger for gold?
I would say that much will depend on how the bond market behaves over the coming days, especially with 10-year Treasury yields continuing to sit just under 5%.
While yields have retreated considerably from above 5.30% earlier this month, that hasn’t done much to help gold regain its footing. Typically, lower Treasury yields should be supportive for the precious metal and so the continued weakness in gold price is rather telling at this point.
For this week, the Fed decision is one to watch alongside PCE price inflation data. Any bias to support a renewed push higher in Treasury yields could easily add to the selling pressure in gold. And considering how fragile the technical picture is looking, gold buyers certainly won’t want to see that happen.
Besides that, big tech earnings will also be a key consideration especially after the recent turbulence we are seeing in the stock market.
Investors are already questioning whether the enormous spending commitments behind the AI boom can eventually deliver the returns that are being promised . And if earnings from the likes of Microsoft, Alphabet, and Amazon fail to offer much reassurance and the tech selloff gathers pace, we could see a broader rush to reduce risk across markets.
Now, you would think that as risk appetite sours, gold should benefit amid its safe-haven appeal. That makes sense and might be how the immediate reaction plays out. However, just be on the lookout as to how disorderly the selloff in equities will be if we are to see major cracks in the AI trade this week or even the next.
If things go too far, too fast, then that could have the opposite effect on gold flows. If the stock market rout gets too ugly, then investors facing margin calls may be forced to liquidate other positions to raise cash. And that includes their gold holdings. Think back to the conditions back in March after the US-Iran war started.
So even if Treasury yields fall as investors seek safety in bonds, gold could still find itself under pressure from forced selling as risk sentiment turns extremely sour.
For now though, the $4,000 mark remains the key line in the sand. A recovery above $4,100-17 would help ease some of the immediate pressure, but a firm break below $3,958-60 would leave the door open towards $3,870 next.
And with the bond market and big tech earnings both capable of stirring up volatility this week, I wouldn’t get too comfortable in assuming that $4,000 will hold just yet.
This article was written by Justin Low at investinglive.com.
