On October 22, gold swung back and forth in a choppy range, leaving traders asking when the range will finally break. Stop waiting for the kind of explosive rally seen earlier in the year, because roughly 80% of the current market is pure range-bound trading.
Right now gold is not short of driving narratives; the problem is that bullish and bearish forces are pulling against each other and cancelling out. The pullback in US Treasury yields offers short-term support, and gold regaining the $4,100 level confirms that buyers are stepping in on dips. But the probability of a December rate hike has climbed to 90%, and while the Fed is widely expected to hold rates steady at this meeting, it continues to keep a December hike on the table. Add the upcoming PCE inflation report to the mix, and bulls naturally hesitate to chase prices higher.
The dollar index is hovering near a three-week low, yet it has failed to ignite a strong rally in gold. That reflects money rotating quickly among US Treasuries, equities and gold rather than forming a sustained consensus to flow into gold. Geopolitical risks keep piling up, with Iran sanctions, Israel-Iran tensions and Houthi attacks all theoretically capable of triggering safe-haven buying at any moment. But when risk drives oil prices higher, it feeds through to stronger inflation expectations, which in turn reinforces rate-hike expectations, trapping gold in a complex web where safe-haven support and rate-hike pressure tug against each other.
What decides the next direction
The path ahead will be set by a combination of key signals: the tone of the FOMC meeting, the PCE inflation data, whether Treasury yields can keep falling, whether the dollar can break below its three-week low, whether there is real progress in Russia-Ukraine peace talks, and whether Middle East tensions escalate further. These variables will determine whether gold holds the $4,100 support and tests $4,150 to the upside, or weakens again under the weight of rate-hike expectations.
Bulls are not without their cards, but every positive factor is ultimately constrained by the direction of Fed policy. Bears, meanwhile, cannot ignore the potential rebound power from geopolitical disruptions and falling yields. At this stage gold is in a classic range-bound market, with resistance above and support below, sawing back and forth, which has become the norm recently.
Why the market feels stuck
We reminded readers earlier: let go of the fantasy and stop expecting the one-way trends seen early in the year. The market spends 80% of its time in range-bound structures. Gold is currently trading within a wide range, with core support at the lower edge around $4,070-$4,080. A pullback to this area can still be considered a chance to build long positions on dips. Continued central bank gold buying globally provides a floor, and combined with technical support, the downside appears relatively limited, with prices likely to grind out a bottom repeatedly at the lower end of the range. Without a major unexpected catalyst, gold will struggle to break into a one-way trend. The key focus should be the Fed's rate decision at the end of the month and the relevant data point on November 3.
How to approach trading
Trading approach: go long on dips near $4,080 at the lower end; consider shorting on rallies toward $4,150-$4,160 in the short term; the stronger resistance above is concentrated around $4,220-$4,230. The range-bound pattern continues, so there is no need to rush into betting on a one-way move. Simply follow the rhythm of the range and trade accordingly.
Comments