The price of gold fell yesterday after a test of resistance and the precious metal is at risk of a sell-off. Gold has been consolidating since a September 28th low, which completed the correction from the highs at $2,075 in August.
The correction in gold is surprising as the twin engines of a second U.S. stimulus and a lower U.S. dollar are still in play. The DXY has broken lower through the 93.00 level and the index is threatening to test the 92.47 lows. The stimulus talks have stalled and markets reacted to that, but the Democrat leader and House Speaker was still upbeat, saying: “We continue. And I am hopeful that we will be able to reach an agreement”.
The dollar sees the release of PMI data this afternoon and the numbers will add some fuel to the dollar’s price action. Analysts are expecting a gain to 53.4 versus 53.2 last month.
Inflation figures have been mixed this week with higher numbers from Canada and the U.K., but lower in Japan. There is still no sign of inflation that is uncontained and this also puts a lid on gold with only the U.S. adding to stimulus measures. This could change by year-end and the pullback in gold may just be a correction, but some analysts also expect central banks to reduce their purchases of gold. In the near-term, the U.S. stimulus will drive the price of bullion.
Gold Technical Outlook
The price of gold has stumbled at the 50-day moving average and the $1931.40 level. This puts a bearish risk on gold and we are trading in a triangle so the next breakout will be important. A close above the $1931.40 level would be bullish. If we trade below 1900 then a short could target the $1863 support. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.
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Gold Daily Chart
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