Chapter 6 09/25 XAUUSD: Range Trading with Emphasis on Selling High and Buying Low
Summary: Gold prices continued to trade within a range this week, as the market saw support for gold from the Fed's decision to keep interest rates unchanged last Wednesday. At the same time, the market was informed that the Fed is likely to raise rates at least once more in 2023 and keep rates at elevated levels throughout the year, putting pressure on the asset.
Fundamentals
Following the Federal Open Market Committee (FOMC) meeting last week, Fed Chair Powell maintained a hawkish stance during the post-meeting press conference, stating that interest rates would have to remain within a restrictive range in the foreseeable future. However, due to uncertainty supporting gold prices, the gold market remains firmly within a neutral range.
For many analysts, the most surprising aspect of last week's Fed decision was the Fed's belief that there may be only two rate cuts next year, lower than the four cuts estimated in June. This aligns with the emerging narrative of "higher for longer."
As for the gold market, current prices may still be unable to break through the neutral trading channel around $1,950, but the gold market will benefit when market sentiment shifts, potentially earlier than some anticipate. For many analysts, the gold price trend indicates that investors are adopting a more cautious stance to protect themselves from economic downturns. Nevertheless, gold prices continue to hover around $1,923, which has become a significant psychological level.
The latest Kitco News weekly gold survey shows that market analysts are divided between bullish and neutral views, while retail investors expect gold prices to either break higher or lower within the recent trading range this week.
Six experts (46%) expect gold prices to rise this week, while only two analysts (15%) predict a decline. Five analysts (38%) hold a neutral stance for gold in the upcoming week.
Meanwhile, an online poll received a total of 591 votes. Among them, 292 respondents (49%) expect gold prices to rise next week. Another 208 voters (35%) anticipate a lower figure, while 91 voters (15%) remain neutral in the near term.
We believe there is potential for gold prices to rise this week. Considering the situation with US treasuries and the dollar, bulls performed well last week. The recent low coincides with the previous trendline resistance of a descending wedge, suggesting that bulls may continue to act this week.
At the same time, the gold price movement will be influenced by the ongoing congressional deadlock. With hopes of reaching a final compromise on the budget dwindling, the possibility of a US government shutdown is increasing (funding set to run out on Friday, September 30). If lawmakers fail to reach an agreement on the budget, this could create a solid bullish sentiment for gold pricing. However, if they manage to reach an agreement and pass legislation before the deadline, we may see gold prices continue to decline.
Technical Analysis
As of the early New York session on Monday, gold prices continue to face pressure below the critical support-turned-resistance level at $1,926, with the 21-day SMA and the 200-day SMA also situated in this vicinity. Within the 1-hour chart, the asset is managing to hold above both moving averages, indicating potential for further upward momentum.
In last Friday's trading, gold managed to breach the latter resistance, challenging the bearish 50-day SMA at $1,929. However, due to the resurgence of bearish sentiment, it was unable to sustain its upward momentum. The relative strength index (RSI) has also dipped back into the negative territory, falling below the 50 level, suggesting that downward pressure remains sufficiently strong.
The current immediate support lies at last week's low of $1,913, and a breach below this level may lead to a retest of $1,910. The next significant support to watch for is the psychological level of $1,900.
On the other hand, a sustained breakthrough above the 21-day and 200-day SMAs at $1,926 is necessary to once again challenge the crucial resistance at $1,929. If the aforementioned resistance is decisively surpassed, bulls will target the 100-day SMA at $1,941 for further upside potential. In terms of trading strategy, a focus on selling high and buying low is recommended.
Trading Recommendations
Trading Direction: Long
Entry Price: 1922
Target Price: 1941
Stop Loss: 1903
Valid Until: 2023-10-09 23:55:00
Support: 1921, 1915, 1910
Resistance: 1926, 1929, 1941
