Upward dynamics of gold, resumption of growth or correction before the decline

The dynamics of the gold price against the US dollar remains an indicator of market risks and a general mood barometer. Despite a clear decrease in tension around the US – China trade relations, the dynamics of gold in October remained upward, due to several factors.

So, against the backdrop of the progress in trade negotiations and the expectation of the actual signing of an agreement between the United States and China, in the last two months, in September and October, gold has come under the considerable pressure. Thanks to which the downward dynamics of recent months has been formed.

But starting in October, the pace of decline in the gold price has slowed, which was associated with a technical correction after the decline, a decrease in optimism around the US-China trade agreement, and, most importantly, with the growth of fears of a slowdown in the global economy. The consequence of fears of a slowdown in the global economy remains the stimulation of  interest rates cuts by global central banks, in particular, the US Federal Reserve.

The first signal for the refraction of a two-month downtrend in gold was the breaking of the trading channel on October 25. It was caused by the correction of market positions before the US Federal Reserve meeting. But the expectations of rates cuts were not enough, and gold returned to a downtrend. The final reason for the formation of the upward trend in gold was the US rates cut and softer rhetoric of the US Federal Reserve.

As a result, gold fixed above the key zone 1500.00-1510.00 and formed the upward trend of October, thereby breaking the downtrend of September. Further gold growth will be limited by resistance levels: 1530.00 and 1550.00. The fundamental factor limiting the growth of gold will remain the Fed’s indecision regarding further stimulation of the economy.

But further signs of a slowdown in the US economy or the global economy in general will act as drivers for the strengthening of gold. Up to the level of 1550.00 (six years high).

The growth of optimism, including due to the US – China trade talks, may slow down the strengthening of the gold price. As a result, the possibility of forming a wide flat from 1530-20.00 to 1500-1480.00 is not ruled out. But in order to resume the downtrend, gold needs to return below the zone of 1480-70.00, which is very unlikely in the conditions of general slowdown of the global economy.

Anton Hanzenko