Gold fails to find that additional spark from US inflation data
The US CPI report yesterday was the main event this week for markets, and it didn’t quite live up to the billing unfortunately. There were no major surprises in terms of the numbers, so that is leaving market players needing to settle back into the pattern before that.
For gold, US-Iran developments remain key but the technical break higher in early August last week helped to at least deliver some upside momentum. But with no optimistic breakthroughs in the Middle East, we’re seeing price struggle to break higher again this week amid a test of another key technical level.
[Gold (XAU/USD) daily chart]
The break above $4,200 was encouraging and helped with a push now to test the 100-day moving average (red line). The key level is seen at $4,387 at the moment.
We have seen buyers poke and prod to test a break on that but even with the another round of bids in Asia today, it’s still not enough it would seem. The high earlier today touched $4,449 before a fall back to $4,375 currently.
The buying in Asia is still a positive sign but it needs to be backed up by more constructive progress in the US-Iran conflict. And with bond yields keeping on the high side still, that may ultimately help to cap gold’s advance in the bigger picture in looking to the second half of August.
The US CPI report yesterday was a potential catalyst to speed things up. But alas, it wasn’t quite enough to produe much of a jolt for broader markets; gold included.
So, what’s next?
It’s all about whether gold buyers can start to look for a break above the 100-day moving average to then try and make a move to test the 200-day moving average (blue line) at $4,501 currently.
There is a lot of work to be done, with needing the headlines to also back up the upside momentum. So, traders will have to hope for softer US data to keep a more dovish Fed in play and/or better US-Iran developments and/or a softer dollar on potential intervention threat from Tokyo and Washington.
In other words, it’s a lot of waiting on an additional external factor to drive home the momentum despite buyers wanting to chase a break.
Otherwise, it could about time for some exhaustion to hit. And that is made fairly evident in the near-term chart:
[Gold (XAU/USD) hourly chart]
With price action stalling in the past few days, the buying momentum is starting to run out of oomph. If we do see a break back below the 100-hour moving average (red line), that could signal further downside to around $4,325 with plenty of scope for a further retreat amid a lack of other buying catalysts for the time being.
In short, buyers are still looking poised but have to do more before they run out of steam and lose some near-term control – which could lead to a bit of a retreat in the latter stages this week.
This article was written by Justin Low at investinglive.com.