Upon evaluating the movements of the since the beginning of this month, I find that the reversal seen on Tuesday is still under threat of being smashed down, as this appears to be a partial pullback from two days of outsized losses.
Undoubtedly, gold futures were slapped with a heavy dose of profit-taking after U.S. President Donald Trump nominated former Federal Reserve governor Kevin Warsh as the next chairman of the central bank.
While the nomination cleared up a major point of uncertainty for markets, sapping some safe-haven demand, Warsh is also seen as a less dovish pick than markets were expecting.
Warsh has largely supported Trump’s demands for lower interest rates. But he has also criticized the Fed’s asset buying activities and called for a smaller balance sheet– a theme that could see monetary policy remain relatively tight in the coming years.
The dollar rebounded from near four-year lows after Warsh’s nomination, further pressuring metal markets.
Focus is now on upcoming U.S. nonfarm payrolls data, due this Friday, for more definitive cues on the world’s largest economy and the path of interest rates.
Beyond monetary policy, the cooling of geopolitical tensions between the U.S. and Iran also sapped safe-haven demand for gold this week.
Tehran and Washington will resume talks over the former’s nuclear ambitions on Friday, following repeated warnings from Trump over potential military action against the Middle Eastern country.
Technically, if we look at the current position of the spot gold-silver ratio () in a daily chart, despite some weakness on Tuesday after Monday’s indecisive candle, it could take a reversal, as currently at 57 could try to test the immediate resistance at 60.
Technical Levels to Watch
In a daily chart, gold futures are trying to hold the immediate support at the 20 EMA ($4,823.81) while trading just below the immediate resistance at the 9 EMA ($4,937), which is tilting downward, likely to move below the 20 EMA, and could form a bearish crossover on Tuesday. Today’s rally can only be sustained if the futures hold sustenance above the 9 EMA.
Undoubtedly, gold futures could attract big bears if they test the next resistance at the tested high of Monday at $4,911, as the selling pressure remains high at this level.
And, in case the gold futures find a sustainable move below the immediate support at the 20 EMA, futures could try to test the next support at the 50 EMA ($4,549), where a breakdown could push the futures to test the next significant support at the 100 EMA ($4,232).
In conclusion, I find that the gold futures could remain volatile this week, and the trading range could be between $4,930 – $4,232.
Disclaimer: Readers are advised to take any position in gold futures at their own risk, as this analysis is based only on observations.
