The gold market has finally managed to stop the “bleeding” for a while. After being severely pressured to its lowest level since March, XAUUSD showed signs of recovery late Tuesday. However, don’t be fooled because this rise does not mean that the bulls have regained full power. It is more the action of investors who are weighing up the geopolitical tensions and the reality of the bond market that is still gripping.
KEY DRIVERS & MARKET SIGNS
Oil Falls. The main story today is not actually about gold, but crude oil. The sudden fall in WTI oil prices to $102 per barrel has given gold some breathing room for a while. As energy prices fall, inflation expectations also ease slightly, thus pushing down US Treasury yields. The drop in the 10-year yield to 4.406% is the “oxygen” that gold needs to stop falling, as the cost of holding gold becomes a little cheaper for investors.
Strait of Hormuz Tensions Despite reports of missile activity involving Iran, the market seems to have started to forget. Geopolitics now acts only as a floor (support), not a booster. As long as the conflict does not explode to an extraordinary level, traders prefer to watch the Dollar's movement rather than the war headlines. Gold is trying to rise, but as long as the Strait of Hormuz remains in the status quo, the risk premium will not be able to carry gold high.
US Dollar Hard Ceiling The Dollar Index (DXY) still stands tall at 98.44. This is the main enemy of gold right now. Even though yields have fallen a little, the Dollar still does not want to give in. As long as the DXY does not "break its back", any rise in XAUUSD will always be met with selling pressure. Buyers from outside the US still see gold as an expensive asset, and this is a major obstacle to a 'long term rally'.
MARKET TECHNICAL STRUCTURE
Technically, gold has just completed a "tough test" in the value zone between $4,495 - $4,401.
Current Bias: 'Bearish to Neutral'. The rise so far is considered to be just a technical rebound from the oversold area.
Key Support: The $4,401 level is the last bastion. If it breaks through, gold will enter ‘Bear Market Territory’
The Big Resistance: The real ceiling price is at $4,808. As long as the price is below this level, every increase is just an opportunity for sellers to re-enter (Sell on Rally).
The current market movement is a ‘damage control’ move. The buyers who are entering now are only ‘bargain hunters’ (cheap price hunters), not investors with conviction (conviction). There is a difference between buying because it is cheap and buying because you believe the price will go up.”
IMPORTANT ECONOMIC DATA COMING
U.S. Employment Report (NFP): This is the Grand Finale of the week. This is the data that will determine whether gold will continue to breathe or sink again. Traders are waiting for a signal whether the US economy is “STRONG” enough for the Fed to act.
MARKET EXPECTATIONS: TWO SCENARIOS
Scenario A: Jobs (NFP) Data Misses (Gold Bullish) If this week’s jobs data comes out lower than expected, the market will once again expect the Fed to cut interest rates sooner. This will weaken the USD and give gold a clear path to retest the $4,808 level
Scenario B: Strong Jobs Data (Gold Bearish) If the US economy continues to show strength, the “Higher for Longer” theme will return to the fore. Gold risks a plunge towards around $4,000, a drop deep enough to change the long-term trend.
Don’t get too excited about gold’s rise today. Gold is at a very critical crossroads. Don’t catch the falling knife.
