Pressure on gold prices increases

The gold market witnessed a massive sell-off yesterday. The price went down by almost 2%, reaching the level of $1970 per ounce. Although the downward pressure eased by the end of the trading session, there is still a short-term bearish momentum. If the price remains below the 1990 level, the decline might accelerate and push gold to the 1955 mark soon.

Yesterday's drop in gold prices was triggered by the release of the UK inflation data. Price growth slowed from 10.4% to 10.1% in March, but market participants had expected an even lower rate (9.8%). The British statistics became another argument in favor of the opinion that the monetary policy tightening cycle in Western economies will not stop. This caused a subsequent weakness in the gold market.

Extensive purchases of precious metals carried out by central banks have been one of the main reasons for gold prices' rapid growth in recent months. However, when prices surpassed the landmark level of $2000 per ounce, some of the financial regulators switched from building up reserves to selling gold.

According to the World Gold Council (WGC), Turkey (last year's biggest gold buyer) sold 15 tonnes of this precious metal in March. Another seller was the National Bank of Kazakhstan. It reduced its gold reserves by 10.5 tonnes in March. In general, global central banks are still interested in adding to their gold reserves, but they are trying to buy the metal at prices lower than they were in recent weeks.

The 1990–2000 is the key range for the gold price trend in the coming days. If sellers’ level of activity remains high, the price might move towards the next Fibonacci 38.2% correction level (1955). Yesterday's low of 1970 would be an intermediate downside target.

Consider the following trading strategy: 

Sell gold in the 1990-2000 range. Take profit 1 – 1970. Take profit 2 – 1955. Stop loss – 2015.

Traders could also use a Trailing stop instead of a fixed Stop loss at their convenience.