Gold prices have experienced a pullback after a significant sell-off last week, with traders awaiting US inflation data to reassess fundamentals. The precious metal is currently trading in the $2,340s, showing a modest pullback from oversold levels on Monday. However, the market remains quiet due to public holidays in the UK and the US, leading to reduced trading volumes.
The drop in gold prices last week was driven by changing expectations regarding the future path of US interest rates. Better-than-expected US economic data led to a revision of market expectations for when the US Federal Reserve (Fed) is likely to lower interest rates. As a result, interest rate future markets are now giving lower odds of a rate cut at the Fed’s September meeting, impacting the price of gold negatively.
From a technical analysis perspective, gold is consolidating after the recent sell-off, which has resulted in a new downtrend. The precious metal seems to be favoring short positions over longs, with a potential downside target of $2,303 based on Fibonacci levels. The Moving Average Convergence Divergence (MACD) indicator is attempting to cross above its signal line, potentially signaling a buy opportunity if successful. However, a decisive break above the trendline at $2,360 would indicate a reversal of the short-term downtrend.
In the short term, gold is likely to continue forming a consolidation or continuation pattern within the current downtrend. The recent break below a major trendline suggests a follow-through lower, with potential downside targets of $2,303 and $2,272. A break below the recent low of $2,325 would confirm further downside movement. Despite the medium and long-term bullish trends in gold, price action is not currently supporting a resumption hypothesis, indicating the need for a decisive break above $2,360 for a recovery to occur.
Overall, while gold prices are currently consolidating within a downtrend, the upcoming US inflation data could provide new insights and potentially drive market movements. Traders are advised to closely monitor price action, technical indicators, and major support and resistance levels for potential trading opportunities in the gold market.