Further strengthening of gold prices is questionable as technical signals hint at correction

Gold prices have started the new week with a decrease, being still within the multi-day range and near the historic high of $2,589.54. Expectations of significant interest rate cuts in the US and the escalating tension in the Middle East remain the main support factors.

During the current quarter, the gold price rose by almost 15%, recording its fourth consecutive quarterly gain.

Data released on Friday showed a moderate increase in US consumer spending for August. This indicates sustained strength in the country's economy in the third quarter. At the same time, inflationary pressure is easing, reinforcing expectations of an imminent interest rate cut at the Federal Reserve's (Fed) November meeting.

According to the CME FedWatch data, the probability of the Fed easing monetary conditions by 50 basis points at the next meeting is estimated at 53%. Lower rates reduce the opportunity cost of owning the yellow metal. The asset is also perceived as a safe-haven amid economic and political instability.

Investors are eagerly anticipating comments from Fed Chair Jerome Powell.

Meanwhile, the situation in the Middle East remains uneasy, as tensions expand territorially.

From the technical perspective, gold prices continue following the uptrend on the D1 timeframe. In terms of wave analysis, the price is forming the third ascending wave on the H4 chart. This impulse wave has almost completely played out. Signs of a pullback are beginning to emerge, as traders have already priced in expectations of a Fed rate cut at the next meeting. Divergence of the Relative Strength Index (RSI) indicator (standard values) points to a possibility of changing the direction and forming a new downward wave.

Signal:

Short-term outlook for GOLD is to sell.  

The target is at the level of 2595.00.

Part of the profit should be taken near the level of 2635.00.

The Stop loss is located at the level of 2720.00. 

The bearish trend has a short-term nature, so it is worth keeping the volume of trade to no more than 2% of your balance.