Gold prices continued to edge lower this week, amid a general risk-on environment. Indeed, major US equity indices continued to post fresh all-time highs this week, while safe haven assets tumbled. A potential explanation is that investors have become somewhat accustomed to the latest missile strikes from North Korea, evident by the muted market reaction after Friday’s launch. In our view, as long as this geopolitical risk does not translate into military conflict, market participants may continue to place less and less emphasis on such developments. If seen in isolation, this could imply even lower gold prices in the coming days.
Not so fast though: the near-term path of gold may also depend on any major move in the US dollar. In this respect, we will keep an eye on tomorrow’s FOMC decision. We see the case for the Fed to keep its "dot plot" unchanged and signal one more rate hike this year, something that could help the dollar recover somewhat. If so, this would be another factor arguing for the continuation of the recent decline in gold.
XAU/USD traded lower on Monday, breaking below the support (now turned into resistance) barrier of 1315 (R1) and the short-term uptrend line taken from the low of the 10th of July. Nevertheless, the price continues to trade above the psychological zone of 1300 (S1) and as such, we prefer to stand pat for now. A break below that key territory may trigger a short-term reversal and initially aim for our next support of 1292 (S2).
Switching to the daily chart, the fact that the yellow metal is trading above 1300 (S1) leaves the door open for a rebound, and keeps the longer-term outlook somewhat positive. A break below 1300 (S1) will bring the price back within the wide sideways range that had been in place from January until late August, and perhaps signal further declines within that range.