The price of gold continues to consolidate around the $1,800 level as traders await confirmation as to whether or not the US Federal Reserve is going to announce tapering at the end of the new trading month during the Jackson Hole Symposium.
Last Friday gold fell abruptly following hawkish comments from St.Louis Federal Reserve President James Bullard argued that the central bank should start reducing its $120 billion in monthly bond purchases “fairly rapidly”.
We should remember that Fed’s chair Jerome Powell’s was recently more dovish than expected during the FOMC presser last week. Powell explained that a rate hike was a way off and expressed the importance of job creation rather than being fixed on inflation readings.
This makes this week’s job report extremely important for the Federal Reserve as is likely to decide as to whether the US central bank will announce tapering during the upcoming Jackson Hole meeting.
We should expect gold to be extremely price sensitive to important economic data from the United States this month. Rising COVID-19 cases and falling stock markets in China will most probably not enhance the bull case.
Overall, we should expect gold to range between the $1,750 to $1,850 area until we know the FED’s stance on tapering. I suspect the FED will not taper, and United States and global economic data to start to worsen into year-end.
Current sentiment metric towards gold is currently suggesting further losses are likely. The ActivTrades market sentiment tool shows that 62 percent of traders are still bullish towards gold.
A drop in bearish sentiment has taken place over the last week and I think traders are becoming too bullish towards the price of gold, and we could see another test under the $1,800 level before any meaningful recovery can take hold.
Gold short-term Technical Analysis
The short-term technicals for the yellow-metal shows that a bullish breakout from an inverted head and shoulders pattern has started to stall. The mentioned bullish pattern still has yet to reach its upside target.
Dip-buyers may be lurking under the $1,800 level between the $1,790 to $1,775 price area. With the pattern not reaching its full upside potential I believe this makes a strong case for an eventual rebound.
Gold Medium-term Technical Analysis
According to the daily time frame, gold is struggling to overcome and stage a daily price close above its 200-day moving average, around the $1,820 resistance level. This is the key bullish/bearish marker to watch this month.
On a long-term basis, the weekly chart shows that gold is clearly starting to form a cup and handle pattern, which looks to be near completion. An explosive breakout above the $1,900 level could prompt a test of the $2,080 and $2,200 level.