- According to analyst Eren Şengezer, the technical outlook for yellow gold prices has turned bearish after Thursday’s sharp decline.
- According to the analyst, the next downside target for XAU/USD is located at $1,730.
- FOMC will announce policy decisions and publish updated Foresight Summary.
Golden pricesyellow started the week relatively calmly and continued to fluctuate in the horizontal channel of the previous week on Monday. While the precious metal managed to climb above $1,800 on Tuesday, it came under strong bearish pressure in the second half of the week and dropped to a one-month low at $1,745 on Thursday. The XAU/USD pair struggled to post a convincing recovery ahead of the weekend and ended the second week in negative territory, losing around 2%.
What happened in the gold market last week?
Data published by the US Bureau of Labor Statistics on Tuesday revealed that inflation in the USA, as measured by the Consumer Price Index (CPI), decreased from 5.4% in July to 5.3% on an annual basis in August, as expected. Further details of the report showed that the Core CPI, which excludes variable food and energy prices, fell to 4%, compared to the 4.2% forecast for analisdollarserin of 4.3%.
With this pressure suggesting that the Federal Reserve may prefer to delay the decline in asset purchases, the dollar started to weaken against its rivals. However, the risk-averse market environment helped the US Dollar Index (DXY) to limit its downside and made it difficult for gold to maintain its bullish momentum.
The Fed reported Wednesday that Industrial Production rose 0.4% in August, below market expectations of 0.5%. On a positive note, the New York Federal Reserve Bank Empire State Manufacturing Index rose sharply to 34.3 in September from 18.3 in August. While these pressures failed to trigger a significant market reaction, rising US Treasury yields supported the USD midweek.
These data affected the gold prices in the past week!
On Thursday, the U.S. Census Bureau announced that U.S. Retail Sales rose 0.7% in August, beating the market forecast for a 0.8% contraction by a wide margin. Strong data revived optimism about the rebound in the US recovery and allowed the USD to continue to outperform its rivals. Also, the 3% increase witnessed in the 10-year US Treasury bond yield put additional weight on XAU/USD’s shoulders, causing the pair to lose more than 2% on a daily basis.
Finally, the University of Michigan (UoM) Michigan Consumer Sentiment Index rose from 70.3 in August to 71 in September’s advanced forecast. Market participants paid little or no attention to this data, and DXY continued its rally ahead of the weekend. Meanwhile, gold prices in yellow found some demand amid the sharp decline in US stocks and closed Friday almost unchanged.
Which developments are important for the yellow gold prices next week?
The k charts will not release high-impact data on Monday and Tuesday, and gold is likely to fluctuate between key technical levels. On Wednesday, the Federal Reserve will announce its monetary policy decisions, along with the updated Summary of Forecasts, following the FOMC’s two-day meeting. Investors will closely follow the dot chart, which reveals policymakers’ rate outlook and inflation forecasts. More importantly, FOMC Chairman Jerome Powell’s statements at the press conference will look for new clues to the timing of the asset reduction.
Speaking at the Jackson Hole Symposium, Powell acknowledged at his policy meeting in July that he thought it would be appropriate to begin asset reductions this year. Since then, the disappointing August jobs report and gloomy consumer sentiment, which showed a 235,000 increase in Non-Farm Payrolls versus market expectations of 750,000, have prompted investors to reassess their expectations for the Fed’s contraction. But this week’s upbeat Retail Sales data make it difficult to predict whether Powell will take a cautious tone.
If Powell announces that the Fed will start reducing asset purchases before the end of the year, the USD is likely to gain strength and force XAU/USD to turn south. On the other hand, the dove pattern, which the president avoided presenting a narrowing timeline, could trigger a heavy USD sell-off and fuel a gold rally. On Thursday, IHS Markit will release preliminary Manufacturing and Services PMI data for the eurozone, UK and US.
What levels can gold prices see next to yellow week? The analyst explained
According to Eren Şengezer, after the sharp decline on Thursday, the Relative Strength Index (RSI) indicator on the daily chart fell below 40 and moved sideways on Friday, showing that XAU/USD has more room on the downside before it is technically oversold. According to Eren Şengezer, a one-day close below $1,750 (static level) for gold prices and yellow could open the door for additional losses towards $1,730 (static level) and $1,720 (static level). However, if such a move does occur, if the RSI drops below 30, there could be a technical correction for the gold price before the next leg goes down.
Gold prices rose about 3% for the rest of the week, when the RSI last fell into the oversold zone on Monday, August 9th. However, buyers are unlikely to dominate the move if the pair fails to make a daily close above $1,810, where the critical 200-day SMA is located. Ahead of this level, $1,770 (Fibonacci 61.8% retracement of the April-June uptrend) and $1,800 (psychological level) are aligned as intermediate resistances for the yellow gold price.