Tech beat: Last line in sand for gold bulls

October 04, 2023 (MLN): The $1,807 support level is the last line in the sand for gold bulls, if this breaks next support lies at $1,717 which should not be tested if gold is to see any bullish momentum in the short to mid-term.

Instead of rushing to catch a falling knife / 'predict' the bottom, which is very risky and difficult in such sharp trending conditions, it is advisable to wait for some signs of reversal or consolidation.

A possible trigger for long positions could be a run of lows at $1,804 followed by a re-entry back into the range.

The significance of the $1,898 level has been repeatedly emphasized previously, as also mentioned in the August 16th article, which stated, "The international spot gold market is currently at a critical juncture, testing the pivotal $1,898 support zone."

Subsequently, a false breakdown occurred, swiftly followed by an immediate reclaim of this level, as denoted by the grey circle on the chart below. This price action triggered a relief rally toward the 100-day moving average.

XAU/USD Daily time-frame chart:

However, it was short-lived, as the market retraced to the $1,898 level on September 14, reaffirming its critical nature. Another bounce occurred from this key support area back towards the 100-day moving average and rejected off once again, forming a ‘lower high’.

Subsequent price action witnessed a further decline toward the $1,898 level, which this time failed to hold, resulting in a clear signal to initiate short positions or liquidate longs, given the pivotal importance of this level. This breach led to a sustained downward trajectory in prices without any significant recovery.

Many market participants kept attempting to catch a falling knife, seeking to pick the market's bottom, but the bottom continued to elude them. The significance of this level has now become evident to a wider audience following the sharp downward movement.

Quoting the previous article, it was mentioned, "Until there is a positive shift in global economic conditions, the demand for the US Dollar is anticipated to remain high, leading to reduced attractiveness of gold."

"Furthermore, a strong US Dollar makes other currencies lose their appeal, thereby increasing the cost of gold for individuals holding different currencies, given its denomination in US dollars."

While the gold continued to bleed red, consistently losing its value since the last article, the greenback rallied to a level not seen since November 2022.

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.

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