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October 18, 2018

IronFX, Gold Market Outlook - Gold bears looking to take over

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Gold might return to lower levels. What to expect now?

This article is originally referred from IronFX News.

Last week, we saw Gold on a steep bullish run, breaking out of the sideways range it was moving in since August.

The bullish run which was considerable, among the strongest in the second half of 2018 for the precious metal, was driven mostly by the drop in the US CPI year on year reading, but also the hike of the US bond yields.

Market participants and analysts, who followed the US bonds yield movement were indicating that the instruments were sending mixed messages or that something is affecting the overall picture of the healthy US economy status.

In our opinion and a shorter note, the market was looking for a way to react to the news and used buying Gold as the way out.

This is a rather emotional reaction of the market leading to a rather overpriced precious metal at the moment.

Furthermore, Bullion could be heading for a downward correction at the moment and more precisely could be heading to the levels it was before, like the 1200 key level.

Even though most market participants love the emotional reactions of the day to day news and ideas the media presents, a more solid macro-economic outlook could prove to be much more useful to the serious traders out there, looking for an edge to trade.

Last night’s FOMC’s meeting minutes did not have much news to offer for market participants but to confirm the path the FED has chosen to somewhat cool off the economy.

As a precious metal, Gold is strongly inversely related to the US Dollar and so looking at the situation in the US economy, it makes much more sense for how it will trade in the following month.

The FED’s next meeting is on the 8th of November but is not considered to be a major event as according to FFF the probabilities are of 95.2% for the bank to remain on hold.

So the next FED meeting on the 19th of December is when the market expects the FEDs next rate hike.

We did see some results stemming from the last rate hike on the 26th September as the year on year Inflation rate dropped providing a figure closer to the Feds target of 2%.

At the moment the FED seems to be gaining trust as their actions have held the US economy back from overheating.

Even though the FED has been criticized by president Trump on various occasions we support the fact that the US economy is in excellent shape but growth must be controlled because too much growth at the same time could lead to huge down falls and create extensive recessions.

So economic strength and stability comes with equal control and discipline.

Moreover, market reaction from the FOMC minutes dragged the dollar upwards leading the Dollar Index to a fresh one-week high compared to other currencies, which equally caused the precious metal to drop even further on Thursday.

On the Trade war front, things have been very quiet during the current week despite some economic indicators showing that China has not been affected as much as analysts thought by the tariffs but also the fact that US president Donald Trump has stated he is ready to negotiate with the Chinese Mainland in order to reach a fair solution.

We see the case for Investors and analysts turning to risk appetite instruments being rather muted at this point, as things have not escalated and are somewhat stagnant.

In addition we keep our opinion that Gold will return to lower levels due to the pre mentioned argumentation and we believe that many positive developments from the US economy are not priced in from the market yet.

XAUUSD 1 Hour chart
XAUUSD 1 Hour chart

Gold has been moving lower during the past days testing the 1218.64 (S1) support line, giving the impression it could be looking for a break on the downside.

The precious metal is used to volatility with big movements up or down and if our 1218.64 (S1) support barrier is beached we could see the precious metal dropping even further towards the 1210.66 (S2) support barrier.

On the contrary an upwards movement towards the (R1) 1232.93 resistance line, could indicate the bulls are back in play and if the precious metal moves even higher then we could looking at a different trading range.

However due to the fundamentals discussed above we share the case, that Gold is in for a bearish run which is also the case technically as we have observed 5 lower troughs in the past few days.

Original Source: IronFX News

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