The gold price has been on the decline for the second consecutive day, reaching a two-week low. While technical selling is one of the reasons for this downfall, it is expected to be limited in scope. The Fed’s anticipated rate cut in September and the prevailing risk-off sentiment in the market could provide some support to gold in the near future.
The global risk sentiment has taken a hit due to disappointing global flash PMIs, signaling worries about an economic slowdown. The preliminary survey by HCOB pointed towards a weakening economic outlook in the Eurozone. On the other hand, S&P Global reported continued business activity growth in the US private sector, albeit with some variations in the manufacturing industry.
Former New York Federal Reserve President, William Dudley, has called for a rate cut as soon as next week, citing concerns about a potential recession. Market participants have already priced in a 25 basis points interest rate cut in September, with expectations of further cuts in the subsequent monetary policy meetings in November and December.
From a technical perspective, the breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart signals a bearish trend for gold. Support levels at $2,385 and $2,370 are crucial for determining further price movements. Oscillators on the daily chart have started showing negative signals, indicating a downside bias. Any potential recovery in gold prices might face resistance at the $2,400 mark.
In the short term, gold prices are expected to face resistance at the $2,400 level, with the potential to reach $2,412 and $2,423-2,425 resistance levels. However, a sustained strength beyond these levels could pave the way for a move towards $2,469-2,470 intermediate resistance and even the previous all-time peak at $2,484.
The gold market is currently influenced by a combination of technical factors, global economic concerns, and expectations of a Fed rate cut. While the short-term outlook remains uncertain, a clear break above key resistance levels could signal a bullish trend for gold prices. Traders are advised to closely monitor US macroeconomic data releases and any updates on the Fed’s policy stance for further insights into the direction of gold prices in the coming weeks.
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