Gold prices ended the previous week at new local highs. The metal also broke the $2000 mark for the first time since May. Meanwhile, technical indicators have become overbought following the strongest three-week rally. Gold needs a correction, and today it has already pulled back a little bit. The decline gives market participants a break before another attempt of the metal to consolidate above $2000.
The situation in the Middle East remains the key driver of gold prices. Due to the ongoing tensions, the yellow metal and other safe-haven assets are in high demand among investors. In case of the Middle East issue getting worse, gold is likely to continue to rise in price along with short-term U.S. government bonds.
At the same time, several factors are suspending the growth of the yellow metal prices. The data on the U.S. economy released on Friday reflects the persistence of high inflation. The PCE indicator, which is the main focus of the Fed, has fallen from 3.8% to 3.7%, but still remains well above the U.S. regulator's target level of 2%. In addition, the latest University of Michigan survey reflected the deterioration of the U.S. population's expectations regarding inflation. The price growth forecast for the next year was raised from 3.8% to 4.2%.
The Fed meeting on November 1 will be the main event of the next few days. Market participants expect interest rates to remain at the current level with 96% probability. At the same time, Jerome Powell and his colleagues will most likely maintain a hawkish stance, giving no hope for an early easing of monetary policy. Ole Hansen, head of commodity market strategy at Saxo Bank, predicts a decline in gold prices to the level of 1950 amid bulls taking profits.
The RSI indicator on the daily chart of gold signals the highest overheating since June 2021. A corrective decline to the level of 1980 will benefit the growing trend, knocking down the aggressive mood of speculators and giving the opportunity to open profitable positions for long-term investors.
Consider the following trading strategy:
Sell gold in the range of 1990-2000. Take profit - 1980. Stop loss - 2010.
Traders may also use a Trailing stop instead of fixed Stop loss at their discretion