Gold’s price seems to have halted its drop since last Wednesday with the prospect of some temporary stabilisation in sight. On a fundamental level we note the following:
- We start by noting that gold’s price seems unable to benefit considerably by the weakening of the USD against its counterparts, hence we tend to see the negative correlation of the two trading instruments seems to have been neutralized at the current stage, at least for the past few days. Yet should we see the weakening of the USD intensifying substantially, we may see the negative correlation being activated and gold’s price rising.
- On a more fundamental level, we note the downgrading of the US Governments’ credit rating from Moody’s over the weekend. The credit rating agency in lowering the US rating from triple A (“AAA”) to ‘Aa1’, cited Moody’s cited the failure of successive US Governments to reduce budget deficits and rising interest costs, thus pointing towards the increasing US National debt. The issue could increase the market’s uncertainty for the US Government, thus it could enhance safe haven inflows for the precious metal should the market’s worries intensify.
- We have no high impact financial data due out from the US in the calendar until next week, hence we expect gold trader’s attention to turn primarily towards fundamentals.
- On the monetary front, should we see Fed policymakers intensifying their doubts for an early timing of interest rate cuts and generally pose a more hawkish stance if compared to the market’s current expectations which include two rate cuts, one in September and one in December, we may see such statements weighing on gold’s price. It should be noted that the bank is currently under pressure by US President Trump to cut rates rather sooner than later, which may be hardening its stance.
- Last but not least we note the uncertainty surrounding the US President’s intentions in regards to the international trade war. In a latest update the US President is reported stating that an 80% tariff on Chinese products entering the US is about right, rekindling the market’s uncertainty for further escalation on the trade war. Should such market worries intensify further over the coming week’s wee may see them supporting gold’s price and vice versa.
Technical analysis
Technically Gold’s price, despite some efforts by the bears to bring the precious metal’s price lower, was unable to clearly break the 3200 (S1) support line and failed to complete the final leg of the double top formation which would bring gold’s price all the way down to the S3. The price action of gold seems to have leveled just above the S1 by breaking the downward trendline that was guiding it since the 7th of May, yet at the same time refused to rise substantially by aiming the 3350 (R1) resistance line. Given the interruption of gold’s downward motion and its later relative stabilisation, we tend to maintain a bias for a sideways motion at least for the time being. Also the RSI indicator seems to run along the reading of 50, implying a rather indecisive market, also supporting the idea of a sideways motion of gold’s price. Should the bulls take over, we may see Gold’s price breaking the 3350 (R1) resistance line and aiming for the 3500 (R2) resistance level. On the flip side, should the bears renew their control over gold’s price, we may see it breaking the 3200 (S1) support line and aim if not breach the 3057 (S2) support level.
- Support: 3200 (S1), 3057 (S2), 2955 (S3)
- Resistance: 3350 (R1), 3500 (R2), 3650 (R3)
