Gold prices faced a sharp decline during Friday's Asian trading session, with spot gold falling nearly $15 to around $4,318 per ounce. FXStreet analyst Haresh Menghani provided a technical analysis of the precious metal's movement.
Menghani noted that gold's downturn was driven by multiple factors, including weaker U.S. CPI data reducing its appeal as an inflation hedge. Additionally, renewed dollar strength and improved market risk sentiment added downward pressure.
During Thursday's New York session, gold initially surged to $4,374.68 per ounce following the CPI release but later plunged to around $4,322. The U.S. Labor Department reported November CPI rose 2.7% year-over-year, below expectations of 3.1%, while core CPI (excluding food and energy) increased 2.6%, signaling easing inflationary pressures.
The softer inflation data diminished gold's demand as an inflation hedge, according to Menghani. Market analysts observed that faster-than-expected inflation cooling reduced the need for inflation protection assets like gold, which had previously benefited from currency devaluation concerns.
As a non-yielding asset, gold typically performs well in low-rate environments and serves as an inflation hedge. Traders are now focusing on upcoming U.S. economic indicators, including existing home sales and revised Michigan consumer sentiment data, along with Fed speakers' comments, which may impact dollar dynamics and create short-term gold trading opportunities.
Technically, Menghani highlighted gold's false breakout above the $4,350-4,355 resistance zone and subsequent drop below the 100-hour SMA as bearish signals. However, mixed oscillator readings suggest caution until a clear break below $4,300 confirms further downside.
Key support levels are seen at $4,272-4,271 (weekly low) and $4,260-4,255. A breakdown here could signal a peak formation, potentially targeting $4,200. Conversely, overcoming the $4,338-4,340 resistance may allow a retest of October's record high near $4,380, with a move above $4,400 extending gold's bullish trend from its October low below $3,900.
As of press time, spot gold traded at $4,317.70 per ounce.
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