Gold Price Retraces From Its All Time High, How Low Can It Go?
The price of shinning metal is trading lower as investors continue to be more risk-takers in comparison to the previous weeks, when we saw the price of shinning metal rise through the roof. The metal is on track to post its first weekly loss in 5 weeks, but it may be a little premature to say this as we are only mid-week and some important economic data is about to hit the tape.
The yellow metal, gold, had a stellar run for the past five weeks as the price was very much moving in one direction, and in one direction only, and that is to the upside. There were a number of factors that boosted the price. For instance, investors are highly sensitive to geopolitical tensions, and in the past several weeks, geopolitical tensions have been rising to a new record level after the direct attacks between Iran and Iraq. Many traders and investors were anticipating that the conflict would wrap up and involve other major Middle Eastern players and perhaps also their allies, and things could easily get out of control. However, cool heads did prevail, and we did not see further escalation of tensions between Iran and Israel, and it appears that things have become a little more silent—at least for now.
The second factor that was pushing the price of gold to the upside was mainly the fact that traders were not favouring risky assets, and by that, we mean stocks. The US stock indices have recorded terrible performance for the past few weeks, especially the Nasdaq index, which recorded its worst weekly performance since November last year. The darlings of the stock market, such as Tesla and Nvidia, also suffered deep losses, and all of this helped the gold price to move higher. Many do believe that the hype about AI may be cooling off now, and if that is true, then it means that the stock market has fewer reasons to impress risk-takers, which could benefit the price of gold.
Thirdly, and more importantly, this month we saw the Fed give a very clear signal that they are not in a rush to cut interest rates. Generally, such a stance would make gold traders worried, as they would think that the dollar index would stay higher for longer. However, that situation has moved away from mean as traders now think that they need to think about the long-term impact of inflation, and when we talk about a hedge against inflation, gold comes to many traders’ minds. This very fact boosted the demand for gold.
Going forward, we do have the US GDP number, which will hit the tape, and if the number confirms the same message that we saw in the US labour data—i.e., that things are on track and there is no need to rush to cut the interest rate because inflation is running hot—then we could potentially see more volatility in the gold price. The price of gold can move in both directions, and that is up and down depending on the sentiment and the strength of the data. The level at which we could see the price touching is shown on the chart below. The immediate support continues to float around the 2192 price mark, while the resistance is at 2427. The important thing to note is the 50-day SMA on the chart, which shows the overall trend, and as long as the price continues to trade above this, the upward trend is likely to continue.
To conclude, investors and traders should continue to pay close attention to the fundamentals mentioned above, which have shaped the price action, and also keep an eye on the important price levels at which bigger potential orders could be placed.
On the date of publication, Naeem Aslam did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
