Huge Sale Needs Healthy Correction, However, $ 1,730 Calls


  • Gold was sold in a period of significant supply as the US dollar catches a strong offer on US retail sales.
  • Gold has fallen well above the daily ATR of $ 22 and ratios of 23.6-50% can be seen in the old support.
  • All eyes are on the Fed as the hawks circle over 1709 New York Avenue.

Update: Gold bears (XAU / USD) pause around $ 1,753 in the initial Asian session on Friday, after the longest one-day south run since early August.

The shiny metal’s $ 50.00 drop on Thursday may be better linked to the bearish breakout of a monthly support line, around $ 1,787 at press time, as well as the overall strength of the US dollar.

Strong impressions from US retail sales for August and the Philadelphia Fed manufacturing index for September rekindled Fed concerns and helped the US dollar index (DXY) post the biggest daily gains in a month Thursday, which in turn weighed on gold prices.

Moreover, the rumor of an ECB rate hike, which was later dismissed, joined discussions that the US, UK and Australia are indirectly challenging China with a pact on US securities and hosting of UK, India, Australia and Japan for diplomatic talks to please gold sellers.

As markets brace for next week’s Federal Open Market Committee (FOMC), with the latest catalysts promoting temper tantrums, today’s preliminary readings from Michigan’s U.S. Consumer Sentiment Index for September, expected at 72.2 vs. 70.3 previously, will be important to watch for a new boost. .

Read: Snapshot of US consumer sentiment in Michigan: Markets will need to look for positive signs

End of update.

Gold broke down Thursday in the Federal Reserve’s statement countdown timer and when Fed Chairman Jerome Powell speaks to the press on September 22. The yellow metal suffered a massive selloff as the US dollar hit nearly 3-week high against a basket of currencies following strong US retail sales performance.

Retail sales rose 0.7% last month, boosted in part by back-to-school purchases and child tax credit payments, while data for July was revised down. Data unexpectedly rose in August, allaying concerns about a sharp slowdown in economic growth. The news has heightened investor expectations for next week’s policy meeting and for how long the US central bank will start slashing stimulus measures.

The DXY dollar index, which measures the US currency against six others, added to the gains after the report and climbed 0.5% to 92.932. It hit its highest level since August 27, printing 92,964 earlier. As a result, XAU / USD, at the current spot price of $ 1,756.23, is trading down 2.08% and moved from an earlier high of $ 1,796.25 to a low of 1,745 , $ 35.

The focus is on the divergence between economies, as highlighted in yesterday’s Australian employment report, for example, which fell sharply. While there was arguably something for everyone, the bias fell into the hands of the bears that boosted the greenback. Data from Canada was also disappointing today and concerns about the federal election are not playing the game. The dollar continues to attract a safe haven supply and while recent data has not been as strong, upside surprises such as today’s retail sales go a long way to restoring confidence in robustness of American economies.

In addition, the recent Fedspeak has been more hawkish. We have been in a period of a Fed speaker blackout this week, so investors will seek clarification on the outlook for both the decline and interest rates at the two-day policy meeting of the Fed which will end next Wednesday. If the outcome were rather hawkish, one would expect it to push the dollar higher, as the decrease would suggest that the Fed is one more step towards tightening monetary policy. It also means that the central bank will reduce the number of dollars in circulation, which in turn will increase the value of the currency.

The massive sale of gold explained

As to why gold has fallen so sharply, analysts at TD Securities may have the answers. Analysts explained that central banks have slowed their buying, reducing a critical supply to the market after their recent buying spree.

Further, analysts explained that the “aggregate net length for the top ten SHFE gold brokers argues that the Shanghai liquidations may have catalyzed the ongoing risk reduction.” “

“After all,” they add, “this backdrop created the timely setup for a speculative false signal, as the easing of momentum signals also ended an algorithmic buying program, further undermining market liquidity. yellow metal. “

However, they argued that “with the length of gold in Shanghai approaching all-time lows, a cleaner discretionary and CTA positioning listing suggests that the decline in gold prices is unlikely to turn into rout. “

Gold technical analysis

In a previous analysis, the bias was predicted yesterday to be downward:

The price is below yesterday’s close and an hourly 50 day EMA channel as shown below in a firm downtrend.

It has been stated that ”a new test of the 50-EMA channel which has a confluence with the ratios of 38.2% could be the last defense before a downside breakout of $ 1,790 and $ 1,780 the September 14th pivot low. This protects a critical daily support area and $ 1,770 is the line in the sand:

In the daily chart above, the price has reached an average reversion of 50% of the previous bearish impulse. Price is now heading lower below this area and a downward extension to -61.8% near $ 1,763 would be expected on a breakout of $ 1,770 ahead of the August 16th lows.

Live market analysis

Here is the result of this analysis:

The hourly price action did indeed stay within the 50 EMA channel, although it slightly exceeded the ratio of 38.2%.

Nonetheless, the price fell from the resistance zone and hit the -61.8% Fibonacci retracement level, and some.

At this point, a consolidation would be expected as traders assess additional data for the week and global economic conditions ahead of the Fed next week.

While there is room to go lower with highs of $ 1,730 and August 10, the price is expected to stagnate and correct given the length of the decline beyond the daily ATR of. $ 22. The 23.6-50% ratios can be seen in the old support which should now be retested as resistance.


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