Gold prices continued to pull back during the European day Tuesday, extending their losses from Monday, as investors’ risk appetite returned with a vengeance. This recent shift in market sentiment may be owed primarily to two factors: the absence of any further escalation of the North Korean crisis, and the fact that Hurricane Irma has been less severe than expected, at least thus far. In brief, some major risks that investors may have anticipated did not actually materialize. Therefore, moving forward, we see the case for the recent price action to continue for a while. Gold and other safe haven assets may retreat further, while riskier assets, such as equities, may continue to recover.
Looking further ahead, even though the latest market action suggests that geopolitical risks have dissipated, we have to sound a note of caution. All it would take to ‘spoil the party’ would be another unforeseen missile launch from North Korea that escalates tensions again. Something like that is not at all unlikely as North Korea warned the US it will face the "greatest pain" it has ever experienced for leading the effort to impose fresh UN sanctions on the regime.
Gold opened with a negative gap on Monday, and continued trading south on Tuesday to dip slightly below the support (now turned into resistance) barrier of 1325 (R1). Given that the price structure on the 4-hour chart remains higher peaks and higher troughs above the uptrend line taken from the low of the 10th of July, we believe that the short-term outlook is still positive. However, for now we see the case for the latest retreat to continue, perhaps to test the 1315 (S1) support line or the aforementioned uptrend line. Our short-term oscillators support the case for the correction to continue for a while. The RSI edged lower and now looks ready to challenge its 30 line, while the MACD stands below both its zero and trigger lines and points down.
Zooming out to the daily chart, we see that the 1300 (S2) zone acted as the upper bound of the wide range the yellow metal has been trading within since the 31st of January, between that hurdle and the 1200 territory. Its break turned the medium-term outlook positive, evident by the subsequent rally and thus, as long as the latest decline remains limited above that key territory, we would treat it as a corrective phase.