Spot gold popped to a six-year high early Friday on the back of dovish comments from New York Federal Reserve President John Williams from Thursday. Comments from Fed Vice Chair Richard Clarida also drove up prices as well as some so-called “safe-haven” buying due to a military incident between the U.S. Navy and Iran.
Profit-takers, however, killed the rally after they were encouraged to liquidate positions after New York Fed officials downplayed Williams’ comments. A steep plunge in the Euro also drove up the U.S. Dollar Index. The strong dollar made dollar-denominated gold a less-attractive investment. The Euro fell as investors ramped up bets on a potential rate cut by the European Central Bank (ECB) on July 25.
At 16:00 GMT, August Comex gold futures are trading $1426.90, down $2.20 or -0.15%. The high of the session is $1454.40.
Daily Technical Analysis
The main trend is up according to the daily swing chart. However, Friday’s potentially bearish closing price reversal top may have shifted momentum to the downside. If confirmed on Monday, this could lead to the start of a 2 to 3 correction.
A trade through $1401.30 will change the main trend to down. A move through $1454.40 will signal a resumption of the uptrend.
The short-term range is $1384.70 to $1454.40. Its retracement zone at $1419.60 to $1411.30 is the first downside target.
The intermediate range is $1323.60 to $1454.40. If the trend changes to down then its retracement zone at $1389.00 to $1373.60 will become the next downside target.
The main range is $1274.60 to $1454.40. Its retracement zone at $1364.50 to $1343.30 is controlling the longer-term direction of the market.
Daily Technical Forecast
The support into the close on Friday is a price cluster at $1419.60 to $1419.50. Today’s low at $1421.10 stopped just short of this potential support area.
Holding above this area late Friday could trigger a short-covering rally into the close. The first target is an uptrending Gann angle at $1431.60.
If $1419.50 fails as support then look for a potential spike into the short-term Fibonacci level at $1411.30. If this fails then look for the late session selling to possibly extend into $1403.50 to $1403.30.
The price action the last two sessions means that investors should look for heightened volatility from now until the Fed’s interest rate decision on July 31. The market should be especially sensitive to the ECB decision on July 25. If they are extremely aggressive then the Euro could plunge, the dollar index could spike higher and gold prices could tumble.
A 25-basis point Fed rate cut is already priced in. This week’s reaction to the possibility of a 50-basis point rate cut means that this will be the issue for gold traders over the next two weeks or so.
This article was originally posted on FX Empire
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