Gold prices are off their highs from earlier today and last week as investors factor in some new important ingredients into their trading decisions.
Background
Gold prices closed in positive territory last week, as the shining metal recorded some really solid gains and closed above the important level of 2,500. Now, traders are asking themselves if the rally will continue or if this is a good time for them to take some profit off the table, given the fact that geopolitical tensions have eased off to a large extent.
New Ingredients for Gold Prices
Well, most traders are likely to take some profit off the table, and it is possible that the price may see further retracement, and this is purely because the gold price went too far and too quick last week. The price level of 2,500 is very hot for many traders, and they are not going to feel very comfortable buying gold above this price point under the current circumstances. This is due to a multitude of factors that are currently in play.
Firstly, the risk appetite is very much back as the US equity markets experienced a decent rally last week, and it seems that the equity traders are very comfortable with their position today as well. The comfort stems from the recent release of economic data, which reassured investors that the market is not in a steep decline, contrary to what many believed after the release of the US nonfarm payroll data.
Secondly, a large number of investors already have baked in the possibility of a deeper rate cut by the Fed. Previously, most market participants were thinking that the Fed would cut the rate by 25 basis points, and now for many, the base case scenario is 50 basis points. So during this week when he comes under the spotlight, if the Fed Chairman does not indicate that is a possibility, it is possible that we may actually see further selloffs for the gold price.
Thirdly, the negotiations over Gaza are still very much in progress, and it appears that Iran may not take any retaliation action due to the heavy presence of Israel's ally in the region. Traders have been closely monitoring the headlines, and they appear to have eased off. This suggests that any action from Iran may be minimal. However, it's crucial to remember that in the realm of geopolitics, one should never dismiss anything completely, as any action can be beneficial and situations can rapidly change.
What Is Next For The Gold Price?
Well, from a technical price perspective, the price is very much trading near the upper line of the upward channel, which means that a retracement is highly likely. This is what we are experiencing now. Having said this, the bulls are not going to be worried as the shinning metal’s price is trading above the 50-day SMA on the daily time frame, which confirms that investors are on the driving seat and the trend is likely to continue as long as the price continues to trade above this SMA. The chart displays the immediate resistance and support levels through the red and green horizontal lines, respectively.
Gold Trading chart by CompareBroker
