gold prices continued to decline early Monday, hitting a six-day low below $2,500, signaling an ongoing bearish trend that started last week. The market faced persistent resistance near the $2,530 level, and with light trading conditions prevailing, a cautious sentiment is evident among investors. Analysts suggest that a test of the 21-day Simple Moving Average (SMA) at $2,475 is probable before any renewed buying interest emerges.
The recent downtrend in gold can be attributed to a resurgence in the US Dollar, bolstered by economic data that dampened speculation around significant interest rate cuts by the Federal Reserve. Last Friday, the core Personal Consumption Expenditures Price Index data revealed a year-on-year increase of 2.6% and a month-on-month rise of 0.2%, aligning closely with market forecasts. This has shifted market expectations towards a more tempered easing approach by the central bank.
This shift in sentiment has led to a stronger US Dollar and rising Treasury yields, which have collectively pressured gold prices lower, resulting in a 1% decline on Friday. Currently, market consensus indicates a 67% probability of a 25 basis point reduction in rates during the upcoming Federal Reserve meeting, with a smaller 33% chance of a 50 basis point cut. This outlook has added to the downward pressure on gold , with liquidity likely to remain thin due to the US Labor Day holiday.
As traders await crucial economic indicators set for release later this week, including the ISM Manufacturing PMI and the Nonfarm Payrolls report, the technical landscape for gold shows mixed signals. The Relative Strength Index indicates bearish momentum, suggesting the potential for further declines. Immediate support is identified at the 21-day SMA of $2,475, and failure to maintain this level may lead to a deeper retreat towards $2,420. Conversely, if gold can hold above $2,475, there might be a rebound towards the $2,500 threshold, with the potential to revisit the $2,530 peak.
