Gold Breaking Below the Trendline Support at $1,765 – A Quick Sell Signal
Arslan Butt • 3 min read
Good morning traders,
The price of the precious metal, gold, has succeeded in stopping the last week’s downside rally, and it has been drawing some modest bids around the $1,770 level. The volatile performance of the equities markets is considered crucial in supporting the safe-haven XAU/USD. Economic growth in China slowed dramatically in the third quarter of 2021, according to data released earlier today. This, combined with concerns about a faster-than-expected rise in inflation, stoked fears of stagflation and dampened investor confidence.
Shockingly good US retail sales put pressure on gold
There was some downward pressure on the market trading sentiment, which boosted safe-haven commodities, such as gold. Then, the price of the yellow metal plummeted on Friday, as signs emerged, indicating that the US economy may not be declining at a rate that would lead to stagflation in 2022. The US retail sales data at the end of the week was shockingly good, which, along with excellent earnings on Wall Street, forced the bulls who were still in at the end of the day to cash in and step away.
On Friday, the XAU/USD dropped from a high of $1,796.49, to a low of $1,764.86. At the start of this week, the gold price is 0.14% higher, as buyers look to protect a strategic layer of support, as shown below, trading around $1,770. So far, the high of the day has been $1,772, with a low of $1,764.
On the other hand, the bullish bias in the yellow metal was restrained by the strength of the broad-based US dollar, which was aided by the current cautious tone in the equity markets. Moreover, the upward movement of the US dollar was further bolstered by a rapid increase in US Treasury bond yields, preventing the bulls from making aggressive bets, and limiting any further increases in non-yielding gold. Currently, the gold price is trading at 1,767.99, and consolidating between 1,765.00 and 1,772.12.
China’s weaker-than-expected macroeconomic data impacts gold
Despite the significant follow-through improvement in US Treasury bond yields, the market trade sentiment failed to maintain its strong performance of earlier in the day, and it lost some positive momentum at the start of the week. However, this could be attributed to China’s macroeconomic releases being weaker than projected. This, combined with concerns about a faster-than-expected rise in inflation, stoked fears of stagflation and dampened investor confidence. Thus, the ongoing mixed performance of the equity markets was seen as a critical determinant that stretched some support for the safe-haven XAU/USD.
On the data front, China’s National Bureau of Statistics announced on Monday that economic growth in the world’s second-largest economy had slowed to 0.2 percent and 4.9 percent YoY in the third quarter, compared to 1.3 percent and 7.9 percent in the previous quarter. Furthermore, China’s Industrial Production fell short of market estimates in September, rising by 3.1 percent YoY, which was down from 5.3 percent in August. This largely overshadowed September’s better-than-expected monthly retail sales figures, which increased by 4.4 percent. This comes amid concerns about inflation rising faster than predicted, adding further to worries about stagflation.
The broad-based US dollar maintained its previous bullish bias and remained well bid, buoyed by higher Treasury yields. Meanwhile, the current cautious tone in the financial markets was another critical factor that helped gold prices to gain extra support. The US Dollar Index, which compares the value of the US dollar to a basket of other currencies, rose by 0.18 percent, to 94.105. As a result, the rising potential of the precious metal was limited by the positive tendency in the US dollar. The markets may remain calmer, due to the lack of major critical data, but Federal Reserve speakers and the Fed’s Beige Book could keep traders entertained. Meanwhile, keep an eye on the release of US Industrial Production m/m.
Gold slips to $1,765 – The technical analysis supports selling
On Monday, the precious metal, gold, was trading with a strong bearish bias at the 1,762 level. Gold has violated an upward trendline at the 1,770 level in the four-hour timeframe. The closing of candles below the 1,770 level is likely to drive strong selling in gold.
On the downside, gold is likely to find immediate support at the 1,750 level, while a break below that level could extend the selling trend until the next support level of 1,740.
Conversely, a breakout at the 1,770 resistance level is likely to expose gold prices towards the next resistance level of 1,786. On the higher side, additional resistance could be found at the 1,800 psychological level. Let’s consider staying bearish below the 1,765 level today and vice versa. Good luck!