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A The price of gold has been in an accelerated downward trend for four months. Technically speaking, gold bears have a solid overall technical advantage in the near future. External markets contributing to these factors included a robust rise in the U.S. Dollar Index (USDX) and the yield on the U.S. benchmark 10-year Treasury Securities.

Fundamentals

Gold continued to maintain a negative tone this week, and fell to a seven-month low of US$1,815 in the Asia session on Tuesday. After falling more than 4% last week, the XAUUSD fell sharply for the sixth consecutive day.

The decline in gold prices in September was mainly driven by the strength of the USD. The USDX hovered around 107.00 on Tuesday, a level that has never been broken since November 22 last year.

At the same time, the short-term prospect of gold is challenged by the soaring yield. The average rate hike cycle of the Federal Reserve has lasted for 21 months. Historically, long-term yields peaked shortly before the Fed stopped raising short-term interest rates. Inflation may continue to climb after the Fed cuts interest rate hikes. The rise in consumer prices in August highlighted that although the Fed suspended interest rate hikes in September, inflation may not have been curbed, and gold may face new downward pressure at least in the new year or before the yield declines.

Another factor is the worry about the expansion of the U.S. fiscal deficit. The yield of 10-year U.S. Treasury Securities soared to a 16-year high on Tuesday, continuing the upward trend that began in May. The recent surge in yields shows that U.S. Treasury Securities is breaking away from fundamental drivers. Worryingly, the expanding federal budget deficit will lead to the supply of bonds exceeding demand, and the yield will also rise.

The latest batch of economic data, including actual personal consumption expenditure and consumer confidence, is weaker than expected, which should have pushed down the yield of U.S. Treasury Securities. But now that most of the bond indicators that used to be effective have been out of order for some time, it is expected that the soaring yield may soon arouse the vigilance of Fed officials.

Technical Analysis

Although with the arrival of the fourth quarter, the market expects the price of gold to fall below the integer threshold of US$1,800, in the medium and long term, the interest rate history is conducive to holding gold at a low level.

Gold remains technically bearish and heavily oversold in the 1D timeframe, suggesting that bears may begin to face resistance further lower. At the same time, the lack of any follow-through buying push suggests that the recent downtrend may still be far from over. Therefore, any follow-through rise could still be seen as a selling opportunity.

Short-term gold price gains are limited by the US$1,830-1,832 resistance. However, sustained strength could trigger bear-covering and push gold prices up to the strong threshold of US$1,850-1,865. On the other hand, the intraday low is near US$1,815, and a break below that level could protect more downside before testing the integer threshold of US$1,800. Some more follow-through selling would bring gold prices back to the medium-term fluctuating range of US$1,770-$1,760.

Finally, the pace of gold price declines may slow down ahead of the key U.S. employment data for September, as some profit-taking may be seen after the recent sharp declines, but the overall bearish outlook remains unchanged. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 1848

Target price: 1806

Stop loss: 1968

Deadline: 2023-10-17 23:55:00

Support: 1815, 1804, 1773

Resistance: 1832, 1848, 1865