October 5, 2021

Will the Downtrend in Gold Break?

 September was not kind at all to gold bulls, but with a new month and new data points to trade ahead, will fundie traders change their tune?

And will technical traders put more weight on the bullish setups than the bearish setups forming on the chart?

Will the Downtrend in Gold Break?

Inflation fears and rising interest rates put the hurt on many risk assets in September, including gold prices which managed to fall -6% last month from the $1,835 handle after a strong August rally.

Gold seems to have found a bottom around $1,721.00 in early October trade, now breaking above the falling ‘highs’ pattern marked on the chart above. Could this be the start of an October rally?

Well, given that a lot of what pushed gold lower was rising speculation that central banks may reduce quantitative easing measures/raise interest rates over the next year or two, mainly focusing on the Federal Reserve, this week’s jobs data from the U.S. could shift sentiment on interest rate outlooks and gold once again.

Expectations are that we will see an improvement in the job situation in September, which would likely further support the odds of Fed tapering this year. If that scenario plays out, interest rates could move higher by the end of the week, once again making life difficult for gold bulls. If gold gets up to the broken support area around $1,785.00 before this happens, we’ll be on the lookout for bearish reversal candles around that area before considering jumping into that technical downtrend.

Now, if the jobs data disappoints and traders ratchet back rate hike bets, then gold could possibly move higher by the end of the week if bond yields move lower. If so and the market is able to break above the $1,785.00 handle, we’ll be on the lookout for sustained trade above that level before considering a potential long position.  We’d also like to point out that bullish divergence pattern between price and stochastic, that could draw in technical traders if the market is able to sustain above that broken falling trendline.

For now, it’s a wait-and-see mode on gold, but with ISM services PMI and ADP non-farm payrolls coming out before the NFP report, we may get clues one what we’ll see on Friday and potentially see the markets move before then. Stay on your toes and be ready for any outcome!

What do you guys think? Is the downtrend in gold over or is this bounce another opportunity to short at better prices? Is gold a buy or sell?

Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.