Authored by Bhavik Patel
Gold experienced a decline of approximately $63 over the course of this week, breaching the psychologically significant support level of $1900 in the COMEX Spot market. The next support level is expected to emerge around $1850-$1835. It is our belief that gold is nearing its support zone due to the recent decline in the value of the US dollar.
The rally in the US dollar began after the Federal Reserve adopted a hawkish tone and the dot plot indicated the expectation of two rate cuts next year, as opposed to the market’s anticipation of four cuts.
The Federal Reserve’s commitment to maintaining higher interest rates for the majority of the next year caught the market by surprise, leading to a rally in bonds and the US dollar. This had a dampening effect on precious metals. The recent strength of the US dollar this week can be attributed to reports from Capitol Hill indicating that there is no resolution in sight, making a US government shutdown appear increasingly likely. Additionally, US Durable Goods Orders exceeded expectations, contributing to the downward pressure on gold, which breached the $1900 mark, as did silver, which fell below $23.
While silver witnessed some short covering, gold has not yet seen any significant short covering. It appears that when gold breached the $1900 level on the downside, long positions were unwound, and short positions were added. This explains why gold experienced a decline despite the weakening of the Dollar index. Therefore, it is clear that yesterday’s weakness in gold cannot be solely attributed to the US dollar.
Considering the risk/reward ratio, taking a long position seems more favorable at this point, especially after witnessing four consecutive negative trading sessions for gold. The momentum oscillator RSI_14 indicates that gold is in the oversold region, with RSI_14 near the 30 level. Historically, gold has rebounded whenever RSI_14 approached this level. Consequently, we anticipate a rebound from the current range.
Regarding potential price levels, the immediate target on the upside is in the range of 58300-58500, with support expected at 57300 on the downside. Therefore, one may consider entering a long position at the current market price, targeting 58500, with a stop loss at 57300.
