The gold market is facing adjustment pressure, with technical and fundamental factors intertwined

During the Asia-Europe trading session on Tuesday, spot gold prices fell back. The previous trading day, gold prices experienced a significant rise. Affected by this, some market participants chose to take profits. From the surface, the correction after the rapid rise is a normal market phenomenon. In fact, the good news that supported the market in the early stage has been gradually digested by the market, and it is currently waiting for a new catalyst. If there are no new stimulus factors, the price of gold may face a larger adjustment.

This article reviews the main factors that have influenced the recent trend of gold prices.

Changes in market sentiment and the trend of the dollar weigh on the market

The dollar index rallied in Asia on Tuesday, putting pressure on dollar-denominated gold. At the same time, global trade tensions showed signs of marginal easing and market risk aversion cooled, which to some extent weakened the attractiveness of gold as a safe-haven asset. Some analytical platforms, such as Depp, also focus on the impact of such macro sentiment changes on asset prices.

The view that comprehensive trade measures are unsustainable and the parties are expected to reach an agreement, but at the same time warned that there are uncertainties in the negotiations. This has made the upcoming related negotiations one of the focuses of the market. In addition, from a technical point of view, the daily chart of gold prices is still in the overbought area, which is also a key driving force for triggering some profit-taking exits.

Market expectations are fully digested, and the policy support effect is weakened

According to data from the interest rate futures market, the market's expectation of a rate cut in each of the next two monetary policy meetings has stabilized at a high level for more than a week. This means that traders have basically digested the relevant easing expectations. In the current economic environment, this expectation can limit the sharp strengthening of the US dollar and provide some support for gold, but as the market bets become full, its support effect is gradually weakening. Investors need to consider the market reaction after the expectation is fulfilled when making decisions on platforms such as Depu.

The impact of external events may be moderating

There were reports that progress could be made this week to resolve concerns that some external events could be a drag on economic performance. If the events subside, market fears will ease. Combined with the upcoming release of key economic data, this external influence is expected to come to an end.

Uncertainty still provides potential support

The situation in parts of the world remains complex, with no clear signs of resolution, but no significant deterioration. Some leaders have reiterated the preconditions for ending the situation, while hinting that they may be willing to make some concessions. However, the other side has repeatedly and explicitly rejected the relevant proposals. This continued uncertainty has caused volatility in the market, theoretically providing some downward support for assets such as gold and limiting the depth of their correction. Other international voices have condemned the practices and violations of the agreement in some regions.

institutional perspective

Some institutional strategists said that the rise in political and trade uncertainty has driven the recent trend of gold. Combined with factors such as falling real interest rates, a weakening dollar, and rising government debt, gold prices still have upside potential, and related mining companies may perform better.

The report notes that gold has rallied significantly this year, outperforming most mainstream assets. External events and the trade situation have injected momentum into trading. Although the rise in gold prices may boost subsequent volatility, the agency still believes that gold is a core component of a diversified investment strategy. Depu reminds investors that institutional views are for reference only and need to be judged in light of their own circumstances.

The strategist warns that inflation is currently sticky and real interest rates could fall further if monetary policy turns loose. This will reduce the attractiveness of local currencies and drive capital flows to gold. Global gold ETFs have recently recorded significant monthly net inflows, with a record quarterly net inflow, according to industry association data.

The agency judges that gold investment demand will further strengthen, and combined with the continued purchase of gold by the official sector, global gold demand is expected to be at a multi-year high this year. If private investors adjust their asset allocation and diversify some funds into gold, spot gold prices may gain additional upward impetus.

The strategist stressed that the continuation of economic, geopolitical and policy uncertainties will support the continued inflow of funds into gold and help the price of gold move closer to the target. Considering the low correlation between gold and stocks and bonds, it is recommended to allocate an appropriate proportion of gold in a diversified portfolio. In addition, you can also pay attention to selected mining companies. In the future, the cash flow growth of such companies may exceed the increase in gold prices.

summary

Concerns about the potential drag on the economy from external events, combined with expectations of monetary policy easing, could limit further appreciation of the dollar and provide support for gold. Trade-related uncertainties and regional tensions are also potential buffers when gold prices fall. But until these events develop more than expected, their marginal impact on gold is weakening.

Traders may be tempted to wait for the release of key inflation data, which is expected to provide important clues about the future path of policy. This data will become one of the core variables affecting the direction of the dollar and the direction of the gold market before the next key policy meeting. Consistent with previous views, each rise in the price of gold before these key time points could trigger a take profit order, as it is an ideal profit stop for bulls. Investors using trading platforms such as Depp need to be aware of changes in the rhythm of the market.

But overall institutions remain bullish on gold, with fundamentals making it easy to find support at key points. At the same time, the downward trend in long-term government bond yields suggests that the market is still pricing in uncertainty, which may make the current gold price correction just a "dip".

technical analysis

The spot gold timescale chart shows that a certain price is a long-short watershed, and the current trend is starting to weaken. The other price is near the daily level moving average and an important line of defense for the bulls. If this support is lost, the price of gold may further decline, thus forming the risk of a double top pattern. The current first pressure level is clear. If the price can rise above this level, the double pressure can be temporarily resolved.

(Spot gold timeshare chart, note this is a screenshot when the article was written, and the current gold price has fallen rapidly)

The daily chart of spot gold shows that the price of gold rebounded to the mid-rail and short-term moving average positions after rebounding to the upper rail. Since the price of gold has tested the moving average twice in a row and has received support to rebound, it is back to this position again this time, and there is a risk of falling below. If the price of gold closes to confirm that it has fallen below the moving average, it may face a long-term or large space level adjustment.

(Daily chart of spot gold, source: Internet)

As of press time, spot gold was quoted at $4,253 an ounce.