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Gold Rebounds Over 1% but Downside Risks Remain
Gold recovered more than 1% after a sharp sell-off as the U.S. dollar and Treasury yields eased, but FOREX.com analyst Fawad Razaqzada remains cautious about calling a market bottom, with the technical outlook still dependent on key support and resistance levels.
Key Points
- Gold: Rebounded more than 1% at the time of the analysis following its sharpest sell-off in months.
- Dollar and Yields: A softer U.S. dollar and retreat in Treasury yields helped ease immediate pressure on bullion.
- Fed: Razaqzada said hotter U.S. inflation could keep monetary policy restrictive and leave another rate increase in play.
- Central Banks: Continued official-sector gold buying is providing underlying support, though not necessarily reversing the correction.
- Technical Levels: Support is concentrated around $4,070-$4,100, with a break below $4,000 still considered possible in the analysis.
SEATTLE (Scrap Monster): Gold attempted to stabilise after its sharpest sell-off in months, gaining more than 1% at the time of the analysis as the U.S. dollar weakened and Treasury yields retreated.
Despite the rebound, FOREX.com analyst Fawad Razaqzada said he remained unconvinced that gold had established a durable bottom. While the immediate pressure had eased, he cautioned against treating the recovery as confirmation that the correction was over.
His near-term view remained modestly bearish, while his longer-term outlook continued to favour gold and, particularly, silver.
Fed Expectations Remain a Headwind for Gold
Razaqzada said hotter-than-expected U.S. inflation data could keep the Federal Reserve in a restrictive policy stance and leave the possibility of another rate increase on the table, particularly if oil prices continue to rise.
For precious metals, the immediate backdrop improved as Treasury yields fell sharply from their post-inflation-data highs and the U.S. dollar surrendered much of its earlier advance.
Those moves provided gold with some breathing room and helped support the rebound, even as technology stocks remained under pressure.
However, Razaqzada cautioned that selling pressure could return following the sharp midweek decline, which weakened confidence among bullish investors.
Central Bank Buying Cushions the Downside
Continued central bank gold purchases have provided an important source of underlying demand, helping the metal hold support despite periods of dollar strength and elevated bond yields.
Razaqzada noted, however, that official-sector buying should not be interpreted as a guarantee of recovery.
Recent price action remained heavy, with gold still unable to decisively break its bearish technical trend. In his assessment, central bank demand has helped slow the decline rather than reverse it.
Gold Still Needs to Confirm a Low
The technical picture remains unsettled, with Razaqzada waiting for clearer confirmation that gold has established a bottom.
Gold has repeatedly attempted to hold support around $4,100, but resistance above the market has continued to limit the recovery.
Support is concentrated between approximately $4,070 and $4,100, an area associated with the early-August rally and one from which gold has already rebounded several times.
Immediate resistance begins around $4,170. A sustained move higher would shift attention toward the next resistance band between approximately $4,223 and $4,285, an area that has capped the market on several occasions.
A convincing break above those resistance levels would make the technical picture more constructive.
Until then, Razaqzada said a move below $4,000 cannot be ruled out, potentially bringing the summer low around $3,942 back into focus.
Courtesy: www.forex.com