Gold Price Encounters Turbulence, But Here’s Why the Downturn May Not Last

Summary:
• Gold price lost for five successive sessions for the first time since February, but there's too much at play for the bears to win.

Gold price extended its decline to the fifth successive session on Tuesday as investors reacted to a stronger US economic outlook. Yellow metal lost 1.7 percent of its value during that period, and it becomes increasingly likely that the Federal Reserve will take its time before slashing interest rates. Gold price was down by 2 percent and traded at 2,622 per ounce at the time of writing.

US interest rates, China stimulus and Middle East War at play

According to the CME Fed watch tool, 86 percent of traders expect a 25-point basis points in November, up from 63 percent a week ago. The US economy showed strength in September, with Non Farm Payrolls numbers exceeding Wall Street analysts’ forecasts and unemployment rate coming down by 0.1 percent to 4.1 percent.

As a result, yields on benchmark 10-year US treasury bonds returned above the 4 percent mark for the first time in two months. This has increased downward pressure on non-yielding gold. However, gold could benefit from safe haven demand as the rising temperatures in the Middle East trigger a contagion effect in financial markets across the world.

Also, Zheng Shenjie, the Chairman if China’s National Reform and Development Commission refrained from announcing additional stimulus injection on Tuesday. Instead, he reiterated that the world’s second-largest economy will meet its 5 percent GDP growth target.

The pause in China’s stimulus sent the Hang Seng Index down by 9.4 percent. Many investors are still uncovinced that the recent stimulus is strong enough to pull China out of its economic downturn. This could trigger increased demand for gold and help spur up prices.

Gold price prediction

The momentum on gold price signals bearish control, and the downside will likely prevail if resistance persists at 2,620. With the downside momentum in play, the first support could come at 2,600. However, a stronger downward momentum could breach that level to test 2,592.

On the other hand, a break above 2,620 will signal a bullish takeover, with the initial barrier likely to be at 2,628. However, if the bulls manage to change that level into support, the resulting momentum could invalidate the downside narrative and potentially test 2,635.