Gold has been rising for several consecutive sessions, demonstrating persistent and at the same time cautious growth. On Tuesday, apparently, it somehow lost its upward momentum. Previously, steady purchases brought the price closer to $1,800. Thus, gold has almost regained its position after a massive sell-off following strong data on the US labor market.
However, an increase in the volume of long positions did not help gold maintain its upward movement. So, it began to decline again. Besides, the US dollar is exhibiting strength. Gold had no choice but to retreat. In the New York session, it tested the support level of $1,780.
Interestingly, the US dollar remained unaffected by the weaker-than-expected data on retail sales. It seems that market participants were seized by the desire to protect themselves and buy up safe-haven assets.
Important levels
After the breakout of the $1.780 mark, bears may push gold $1,776 and $1,770, which are the lows of August 16. At the same time, a rise above $1,789 will weaken the bearish grip and send the quote to the area of $1,795 – $1,807.
May gold regain ground?
As a rule, bulls return after a strong sell-off caused by short-term fundamental factors. This may not work right now. To resume the upward movement, gold needs to test the $1,800 level.
A massive sell-off of gold at the beginning of the month suggests that investors currently tend to get rid of the asset. A similar situation took place in June and January. Usually, gold is slowly climbing higher bit then all of a sudden it crashes down.
The collapse that occurred earlier this month sent the price below the long-term support level. Nevertheless, technically, a decline did not significantly change the trajectory. The previous April lows were not tested, although the price was located near those levels.
The bulls may take the upper hand only after the return of gold above the $1,800 mark. At the moment, there is a long-term support level and a 50-day moving average neat that level. If gold breaks above $1,814, it will attract bulls back to the market after an annual correction.
Now, it is clear that bears are still in control. On Wednesday, traders are waiting for the publication of the FOMC Meeting Minutes for July although its results were rather predictable. There is no need to look for hints about the tapering of the bond-buying program. The Fed's officials have been openly talking about this in recent days. The QE program may be reduced as early as September-November. The regulator planned to fully complete asset purchases by the middle of next year.
Such statements are bearish for gold. The current situation can be compared with the dynamic of gold after the crisis of 2008. At that time, the peak of gold growth coincided with the rally of the stock market. The latter continued to maintain the upward dynamics, while gold entered the correctional phase. When the Fed started making hints about the tapering of QE, the quote went beyond the uptrend line. Gold lost 30% or 2/3 of the rally. Only then gold began to slide gradually.
At that time, gold was under pressure until the Fed hiked the key rate.
If this time gold moves similarly as it did in the last crisis, then the price may fall to $1,450 – $1,500. The bulls can push the quote above the indicated level and it may resume the upward movement. Currently, everything is possible as bears and bulls have equal chances to take the lead in the market.
