Gold price continued its downward trend, reaching its lowest level in months as demand waned after the hawkish Federal Reserve interest rate decision. It dropped to $3,925, down modestly from the August high of $4,700. This sell-off may continue as President Donald Trump prepares to escalate his attacks against Iran.
Gold faces fresh pressure as higher-rate expectations weigh on demand.
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The daily chart shows that gold has come under pressure in the past few weeks, moving from a high of $4,700 in September to a low of $3,958. It has now crossed the important support level of $4,000 as it continued its series of lower lows and lower highs.
Gold formed a death cross pattern, which forms when the 50-day moving average crosses the 200-day moving average. This pattern often leads to more downside. At the same time, the Relative Strength Index (RSI) has dropped from the overbought level of 72.5
Therefore, these patterns suggest that gold may continue falling, potentially to the next key support level of $3,900. The risk, however, is that gold has formed a triple-bottom pattern whose neckline is at $4,700. This pattern means that sellers may attempt to push it higher in the near term.
The ongoing gold price rally is happening as crude oil rally continues. Brent, the international benchmark, rose to $113, while the West Texas Intermediate (WTI) moved to $104. Higher oil prices mean that inflation will remain stubbornly high in the foreseeable future.
Oil prices will likely continue rising after the US midterm elections in which Democrats are expected to win the House of Representatives and the Senate. President Donald Trump has warned that he will launch a short attack on Iran in a bid to put pressure on the IRGC to talk. Iran has warned that it will escalate if the US attacks it.
The most recent data showed that the headline consumer price index (CPI) rose 3.7% last month, while the core figure moved to 2.7%. Similarly, the headline and core personal consumption expenditure (PCE) remained above the 2% target during the month.
These numbers mean that the Federal Reserve will likely maintain higher interest rates for longer. In its last decision this week, the bank decided to leave rates unchanged between 3.75% and 4%. Two officials – Beth Hammack and Lisa Cook – voted to hike interest rates.
In his statement after the Fed decision, Governor Kevin Warsh maintained that inflation remained stubbornly high and that the Fed will do whatever it takes to bring it down. As a result, analysts expect the bank to hike interest rates in its December meeting.
Gold tends to underperform the market when the Fed is hiking interest rates and when bond yields are at an elevated level.