Gold buyers are back in the market after the biggest one-day selloff since June this year, pushing the precious metal's price well above yesterday's low, despite the fact that some members of the Fed remained very cool and calm in the face of yesterday's massive market crash. The question for traders is what will happen to the gold price and whether price action will change direction.
Background
Yesterday was one of the most awful days for the precious metal since June 7 of this year, as the price of the yellow metal fell nearly 100 dollars from its high to low of the day. However, the precious metal's price closed significantly higher than its day's lows, as some bargain hunters took advantage of the low prices. The sell-off that we experienced yesterday wasn’t only limited to the gold market; in fact, it was across the board as the prices of riskier assets also fell sharply.
Why Has the Gold Price Moved Higher?
Many traders and investors are questioning why gold prices have bounced despite Fed member Daly's repeated assertions that the US NFP print, released on Friday, was merely a data point and not a data trend. Her comments clearly indicate that the Fed does not perceive any issues with the US market. While the US job market is cooling off, it is not in danger of a crash or hard landing, as the Fed believes they have successfully prevented the economy from collapsing. So, their particular stance, their view, and their confidence about the US stock market and the US economy have given many traders confidence that perhaps the data that was released last week should only be considered as a data point as nothing bigger than that is happening. However, if we have one or more data points echoing the same message that investors took from Friday’s report, then it would be a different scenario. In summary, the Fed's confidence has restored the confidence among equity investors, protecting them from further margin calls. Furthermore, the absence of further margin calls has eliminated the need for investors to sell more safe havens from their portfolio to cover any potential margin calls.
Will This Trend Continue?
This is a very technical question, with some fundamentals as well. What we mean by this is that traders really need to pay attention to the highs and lows of yesterday’s candle, and the future direction for the gold price is very much going to depend on the price breaking out of the range (high and low) of yesterday’s candle.
From a technical price perspective, algo traders are certainly loving the current trend as this gives them the perfect opportunity to make the most of high frequency by utilising trading VPS, such as ForexVPS, which all make that trades are being executed at the best possible prices while eliminating the risk of trading system running into a potential issue.
From the price perspective, the gold price very much touched the 50-day simple moving average on the daily time frame, which has established one thing very clearly: that there seems to be enough demand near that price point, and the chances are that the price will continue to move higher as long as the shining metal’s market continues to stay above this average. The support and resistance levels are shown on the chart below.
Gold Chart by Zaye Capital Markets
