Gold Sellers Testing the 200 Daily SMA Before Heading for $1,900

The price of Gold had been steadily declining since May, and this decline picked up pace early in August. This was mainly because the economic reports from the United States showed that the US economy was holding up well, while other developed economies were/are heading into a recession. Gold prices keep making lower highs which is a strong sign that sellers are in control.

However, we saw a retrace higher in the previous two weeks. During this period, there was a shift in the trend, causing the price of GOLD to go above $1,950. However, the positive data from the US last week, such as the jump in US ISM services and the unemployment claims which were lower than expected, confirmed that the job market is in decent shape. This boosted the value of the US dollar, which started pushing the price of Gold down after buyers failed to push it above the 100 SMA (green) on the daily chart.

The U.S. Federal Reserve is also showing hesitancy to give a decisive signal that they won’t raise interest rates further. This reluctance means that there isn’t much reason for bond yields (returns on bonds) to decrease significantly, despite the fact that the economy is holding up well.

In particular, “real yields,” which take into account inflation, have stayed relatively high for more than a month. This is because regular interest rates are going up, while concerns about rising prices (inflation) are starting to ease. When real yields rise, it makes it less attractive to invest in assets like Gold, which doesn’t provide any interest or yield as bonds do.

In response to this technical and fundamental outlook, we remain short on Gold. the bearish reversing chart pattern was quite predictable after the doji candlesticks below the 100 SMA. But now sellers are facing the 200 SMA (purple) on the daily chart where the decline stopped last week. A break of this moving average would open the door for $1,900.

Gold XAU Live Chart