Last week, the gold prices showed almost no movement. The outburst of geopolitical tension in the Middle East wasn't supported by other growth factors, and the yellow metal remained within the range of 2625–2675. Now the price is getting closer to the lower boundary of 2625, and in case of its breakdown the correction may accelerate. In this case, the next target of the bears in the gold market will be the level of 2590, which has not yet been tested as a support level.
The HSBC analysts point out the increasingly weaker reaction of the cost of gold to the Middle East news. In their opinion, this factor has already been played off by traders, and now they are favoring dollar assets as safe havens. Unlike the yellow metal, the US currency is far from the historical highs, which makes its purchase less risky. In addition, the unexpectedly strong labor market report for September reduced the likelihood of the Fed's monetary loosening, further supporting the dollar.
The latest statistics on central bank operations also shows a decline in demand for gold. In August, the indicator of net purchases of metal by global regulators amounted to only 8 tons, which is the lowest value since March. And the data of the People's Bank of China for September reflected the fifth consecutive month without replenishment of gold reserves. If the metal does not get less expensive, its consumption by central banks is unlikely to improve.
Against this background, retail buyers in Asian countries remain reserved about deals with gold. According to Reuters, demand for the precious metal in India has increased ahead of the upcoming holidays, but remains well below normal seasonal levels due to high prices. Local dealers are again having to increase discounts; last week the average discount rose from $19 to $21 per ounce compared to global prices.
The RSI indicator on the daily chart of gold has already reversed and went down from the overbought zone, giving a sell signal. The price of the yellow metal has good chances to move to the level of 2625, and then to the level of 2590.
We can suggest the following trading strategy:
Sell gold at the current price. Take profit 1 – 2625. Take profit 2 – 2590. Stop loss – 2675.
This content is for informational purposes only and is not intended to be investing advice.
