On August 31st, the fundamental driver behind the current gold decline is Federal Reserve Chair Warsh's hawkish remarks, which have reignited market concerns over potential future rate hikes. As the US dollar and Treasury yields strengthened in tandem, gold persistently broke support levels and extended its downward slide. With this sustained sell-off, the earlier phase of high-level bullish consolidation has essentially come to an end.
First, it's crucial to understand the current broader market environment. The two dominant factors steering gold's price action remain the Fed's interest rate trajectory and the situation in the Middle East. Warsh's renewed hawkish stance has pushed the market back into a rate-hike expectation mindset. Simultaneously, the resumption of traffic through the Strait of Hormuz is a significant positive for crude oil flows, which in turn is likely to ease US inflationary pressures. Combined, these forces continue to underpin a stronger dollar, thereby increasing downward pressure on gold in the medium term.
As long as these two macro fundamentals remain largely unchanged in the coming week or beyond, gold is unlikely to replicate the strong one-way bull run seen last year. Turning to technical analysis, the price has been under pressure since peaking at the 4700 handle and has now dropped to a low near 4445. The daily chart printed a substantial bearish candle, with prices pulling back toward the middle Bollinger Band. Critically, the weekly chart is also beginning to close bearish, and a bearish divergence signal has clearly emerged from previous highs. In simple terms, the prior daily downtrend was incomplete, and now the weekly chart is confirming a decisive downtrend, suggesting that the scope for further downside is likely to expand.
For now, the medium-term correction in gold is only just beginning. Investors should avoid the temptation to blindly catch the falling knife after a single pullback. However, considering recent price action, short-term moves in gold are rarely linear. Downward trends typically include intermittent rebounds and technical repairs. Therefore, even if the current decline is not yet over, a continuous and relentless crash is not expected.
For next week's short-term trading, we should focus on two clear support levels on the medium-term chart. The first is the 4400 handle, and the second is the August mid-month phase two starting point at 4300. These are the core support zones for the bears. As the market develops, I will assess from live intraday action whether gold can stabilize at these levels or transition into a low-range consolidation phase.
For Monday's short-term trading levels: 1) Primarily look to sell on a rebound toward the 4480-4525 resistance zone (near the 38.2% Fibonacci retracement, valid if the market gaps into this range at the open), with a stop loss at 4555 and downside targets initially at 4445-4410 support. 2) If Monday opens directly below the 4445 low without a rebound, avoid chasing short positions near 4400 initially. Instead, look to sell on a bounce into the 4445-4455 area for a continued short entry. Conversely, if the price opens and reclaims the 4500-4525 range, cancel short orders for now and wait for a rally toward the 4565-4585 resistance zone to evaluate a secondary short entry if price action shows rejection there.
This content is for reference only and does not constitute investment advice. Investors should operate at their own risk.
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