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Gold: how low can it go?

By News

11:08, 2 October 2023

Any material provided is for information purposes only and is not investment advice. Any opinions that may be provided are not a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided. If you rely on the information on this page then you do so entirely on your own risk.

It’s been a bad couple of weeks for gold bugs with the precious metal sinking to a six-month low.

A key driver behind the gold sell-off has been the strength of the U.S. dollar which was given fresh impetus following the Fed’s hawkish ‘higher for longer comments’ at the latest FOMC meeting.

Given that gold is typically priced in U.S. dollars, a stronger greenback makes gold relatively more expensive, leading to reduced demand and putting downward pressure on precious metal prices.

On the daily candle chart (below) we can see that the spot gold price broke and closed below the summer swing lows. This decisive break of structure has opened the door for a retest of the key support zone created by the early-March swing lows.

Whilst there is very little support prior to the early-March swing lows, it is worth noting that the market is starting to show signs of becoming oversold…

Prices are trading outside the lower Keltner channel – this means that price is more than 2.5 ATR’s below the 20-day average price. It is also worth noting that the Relative Strength Index (RSI) has moved below 30 and into oversold territory.

Gold (spot) Daily Candle Chart


If we drill down to the 4hr candle chart, we can see that gold is also oversold on this lower timeframe…

Prices are trading below the lower Keltner channel and the RSI indicator is below 30 and showing signs of divergence (making higher swing lows while gold is continuing to make lower swing lows).

Given gold’s bearish market structure but short-term oversold signals, we would expect to see some form of pullback which may create an opportunity to short gold at more favourable levels of risk-to-reward.

Gold (spot) 4Hr Candle Chart


Risk management

On this week’s economic calendar, we have S&P Global/Cips services PMI data for the U.S. and a host of other G7 nations on Wednesday and we have US employment data on Friday. These economic events have the potential to increase the volatility of gold.

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Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

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