We anticipate another week of negative gold prices, the first since June. Gold traders are scratching their heads and asking so many questions about why the ultimate safe haven asset is not going higher, even though there is serious panic among equity investors who are selling the big tech stocks.
Background
The yellow metal has experienced significant price action this week and last week. This week, the yellow metal's price has primarily fluctuated below the crucial 2,400 support level. For traders, this is sort of a big deal, as bulls do not feel that comfortable with the price being below an important psychological support of 2,400.
So why has the gold price fallen?
Gold, the yellow metal, is considered the ultimate safe zone for investors and traders when there is an actual panic in the market. Indeed, the tech stocks have led a significant sell-off in the equity markets. However, the important point to note here is that it is not all about the stocks selling off; in fact, I would argue that the big tech stocks had a correction long coming as they were highly valued. Gold prices didn't move higher this week on the back of the tech selloff because traders do not consider any kind of systematic risk. For them, they measure this by examining the volatility index, also known as the VIX index. The index has clearly shown that there are no signs of panic yet, and the current sell-off is nothing more than profit-taking.
The second reason for the price decline of the shining metal is similar to the previous one: profit-taking. Gold prices have had a stellar run since the start of this year, so it was pretty much a given that values would move lower when traders began the process of profit-taking. So, even though gold prices have fallen, the sell-off hasn't been that steep.
The third element, and perhaps the most intriguing, is the data from the US. Yesterday, the US GDP data confirmed the Fed's assertion that the US economy is robust and caution is warranted. Earlier this week, speculators were actively discussing the possibility of a significant interest rate cut by the Fed to keep pace with other major central banks, including the ECB. However, the recent data on US GDP growth has cast doubt on those predictions. In addition to this, today we received data from the US Core PCE index, which fell within the normal range and did not raise any concerns for the Fed.
So what Is Next for Gold Prices?
Well, next week is an important one for gold prices, as we will see some really interesting things come up. For instance, we not only have the Fed policy day during which no action is expected; however, a time line for a rate cut may become more clear. In addition, we have the mother of economic data coming up, which is the US NFP. Therefore, we should anticipate significant fluctuations in the gold price.
In terms of technical price levels, we would expect the price to find major support at the second support level, which is near the 2277, and that is if the price moves there. Otherwise, there is a possibility that the price will move toward the immediate support level, which is near 2219. Traders should closely monitor the 50-day SMA, as a move below it could lead to increased selling pressure, while a move above it could lead to increased buying pressure.
Gold Trading chart by AvaTrade
