Gold price bounced from a multi-month high, key levels to watch

Gold price news, and analysis

• The gold price falls on the US 10 years yield rally
• The gold bullish sentiment weakens, what is next?

Yesterday, US 10-year bond yields surged to multi-year highs, testing the significant 5% threshold before experiencing a subsequent decline. This notable increase in yields was primarily spurred by concerns among investors regarding the political turmoil unfolding within the US Congress. With intensifying partisan divisions, the majority Republicans in the House of Representatives faced significant difficulties in reaching an agreement regarding the election of a new Speaker. This political gridlock not only obstructs legislative progress but also raises the odds of a potential partial government shutdown in the absence of a budget agreement. A government shutdown could significantly increase the risk of an economic recession in 2024.

Furthermore, the bond market witnessed increased selling activity, with foreign investors, particularly the Chinese, accelerating the drop in bond prices, thus causing yields to rise. This upward movement in bond yields notably impacted gold prices. It’s well-established that gold often moves in the opposite direction to US bond yields. Additionally, the US dollar’s value remained stable, thanks to recent economic data, with robust consumer spending figures demonstrating a degree of resilience. These figures led to heightened expectations of substantial growth in the US GDP for the third quarter, with potential rates as high as 3.5%.

Gold Price Daily Chart

Chart source ADSS Platform

On October 20, the price of gold surged to a multi-month high at $1997 per ounce before experiencing a retreat as some traders opted to book profits. In the current week, the daily candlestick opened with a downward gap and subsequently closed below 1974, indicating an increasing number of traders exiting the market. This suggests the potential for further price declines towards 1949. A daily close below this level might motivate bearish movements pushing the price even lower towards the support range situated between 1916 and 1911. It’s worth noting that the support level at 1933 should be closely monitored.

On the other hand, if there is a daily close above 1981, this would signal a stronger bullish sentiment, potentially propelling the price towards 2025. Nevertheless, it’s crucial to keep an eye on the resistance zone spanning from 2000 to 2002.