Gold Volatility Over? Maybe Not Yet!Gold volatility hit new heights last week when a push from opening levels at 4243 on Monday (Oct 20th) up to a new record high of 4381 was immediately followed on Tuesday (Oct 21st) by a crash back to lows at 4004 as traders were forced to liquidate weak long positions after key short term technical support levels gave way.
If price moves last week were dominated by positioning, moves in the week ahead could be more events driven providing traders with a lot for to focus on and potentially further excessive volatility to navigate.
Weekend news has so far provided positive soundbites on progress towards de-escalating trade tensions between the US and China. President Trump has stated he is confident of a deal after US and Chinese trade representatives concluded a 2-day meeting in Malaysia (Reuters), while US Treasury Secretary Scott Bessant commented that he believes the two negotiating teams have agreed on a successful framework for President Trump and President Xi to discuss when they meet on Thursday (Oct 30th), their first face to face meeting in 6 years. This has already led to a sell-off in Gold prices from Friday’s closing level at 4112 to a low of 4053 this morning.
Geo-politics remains in focus as Ukrainian and Russian forces trade drone strikes in Ukraine, while a Kremlin spokesperson said it was too early to talk about the cancellation of a meeting between President’s Putin and Trump, despite the White House’s blacklisting of Russia’s main 2 oil producers, Rosneft and Lukoil last Wednesday complicating the issue.
Also on Wednesday evening, the Federal Reserve announce their next interest rate decision at 1800 GMT, with the press conference led by Chairman Jerome Powell commencing at 1830 GMT. While a 25bps (0.25%) rate cut is expected from Fed policymakers, the press conference could be the main volatility driver for Gold prices, as Chairman Powell provides traders with an update on whether a further rate cut is likely in December as anticipated, or if an on-going US government shutdown, which has stopped key US economic growth and labour market data releases, has clouded the issue.
Technical trends may also have a significant impact on where Gold moves next.
Technical Update: Is the Bollinger Mid-Average Key?
Gold’s sharp 8.60% sell-off from the October 20th all-time high at 4381 prompted speculation over a possible sentiment shift that could mean an end to the recent strong advance. However, the rising Bollinger mid-average has so far contained the decline as can be seen on the chart below.
This rising Bollinger mid-average, currently at 4069, held the latest Gold decline, suggesting it might be a key support focus again this week. How the Gold price behaves around this level on a closing basis may offer clues to the next directional bias, either marking stabilisation or opening the risk of a deeper phase of weakness.
If the Bollinger Mid-Average Holds Price Weakness:
If the support at 4069 continues to hold on a closing basis, Gold may see renewed attempts at strength. Traders could then be focused on how potential resistance at 4150, which is the 38% Fibonacci retracement of the latest decline, is defended.
While the mid-average support remains intact, a closing break above 4150, could lead to further upside possibilities, shifting focus to 4239, the 61.8% retracement of the recent decline, or even extending toward 4381 the October 20th all-time high again.
If the Bollinger Mid-Average Support is Broken:
While 4069 has so far contained Gold’s recent selling pressure, it may not hold indefinitely. A closing break below this level might raise the risk of a more extended phase of weakness, opening deeper corrective themes.
Closes below 4069 in Gold could shift trader focus to 3957, which is the 38.2% Fibonacci retracement of the July 30th to October 20th rally. If this support gives way, downside risks may in turn extend toward 3825, a level which marks the deeper 50% retracement level.
The material provided here has not been prepared accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
