Gold retreats as dollar’s initial plunge was bought
After hitting a new high in this recovery phase, gold gave up its gains to turn flat on the day despite the softer PPI print. Though there are no concrete signs of a bearish reversal yet, the metal has nonetheless turned lower from an important technical area, which means the bulls should proceed with some caution after what has been great few days for the precious metal.
Gold’s retreat from the highs was due to the dollar bouncing off its lows after plunging in the aftermath of another inflation surprise, as PPI came in softer today. But, as mentioned, some of the moves have already unwound, suggesting the market is now looking for the Fed to do the walking, having done some (dovish) talking. While the softer PPI data has further raised speculation about the Fed pivoting to a more dovish stance, the fact that other central banks are likely to follow the footsteps of the Fed means the dollar will still hold some interest rate advantage over her rivals. So, the greenback could easily come back after such a strong downward move, and this may undermine gold after its own very strong performance in recent days. It is also very important not to get carried away by one month’s worth of data. Despite coming down, inflation is still very high above the Fed’s target, and the central bank is not going to stop raising rates just yet. But I have never seen the markets react this strongly to inflation data. This goes to show how sensitive the markets have become as everyone is focused on the Fed’s next step.
The precious metal has turned lower after entering the key $1780 to $1800 area, where the metal had previously found significant support back in February, before its collapse and the eventual breakdown in July. It subsequently re-tested this area in August, which led to the next big leg lower. Here we are again, and gold’s next big move will be partially determined by what traders decide to do here. If this area again offers resistance and gold drops, it could go on to re-test the breakout area around $1722-$1735 area next.
On the other hand, if gold managed to close above this area, then that would be another bullish development, which could help to encourage more bulls to step back in after what has been a frustrating year for gold bugs.
By Fawad Razaqzada on behalf of FOREX.com
Gold’s retreat from the highs was due to the dollar bouncing off its lows after plunging in the aftermath of another inflation surprise, as PPI came in softer today. But, as mentioned, some of the moves have already unwound, suggesting the market is now looking for the Fed to do the walking, having done some (dovish) talking. While the softer PPI data has further raised speculation about the Fed pivoting to a more dovish stance, the fact that other central banks are likely to follow the footsteps of the Fed means the dollar will still hold some interest rate advantage over her rivals. So, the greenback could easily come back after such a strong downward move, and this may undermine gold after its own very strong performance in recent days. It is also very important not to get carried away by one month’s worth of data. Despite coming down, inflation is still very high above the Fed’s target, and the central bank is not going to stop raising rates just yet. But I have never seen the markets react this strongly to inflation data. This goes to show how sensitive the markets have become as everyone is focused on the Fed’s next step.
The precious metal has turned lower after entering the key $1780 to $1800 area, where the metal had previously found significant support back in February, before its collapse and the eventual breakdown in July. It subsequently re-tested this area in August, which led to the next big leg lower. Here we are again, and gold’s next big move will be partially determined by what traders decide to do here. If this area again offers resistance and gold drops, it could go on to re-test the breakout area around $1722-$1735 area next.
On the other hand, if gold managed to close above this area, then that would be another bullish development, which could help to encourage more bulls to step back in after what has been a frustrating year for gold bugs.
By Fawad Razaqzada on behalf of FOREX.com
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