Stubborn Resistance May Lead to Bullish Reversal

Summary:

Gold prices initially weakened after the US released mixed inflation and employment data but rebounded later. A series of neutral US economic reports and dovish comments from Fed officials have supported precious metal prices.

BUY XAUUSD

Close Time

CLOSED

2626.07

Entry Price

2660.00

2598.00

4426.86 +49.76 +1.14%

339.3

Pips

Profit

2598.00

2660.04

Exit Price

2626.07

Entry Price

2660.00

Fundamentals

Market volatility surged after the US Department of Labor released mixed inflation and employment data. Spot gold initially faced selling pressure but quickly rebounded into positive territory, with short-term fluctuations of up to $17. The US Dollar Index experienced a similar surge, with a 50-point move, briefly touching the 103 level before pulling back.

The US Labor Department's data showed that September's CPI rose 2.4% year-over-year, higher than market expectations, while core CPI increased by 3.3%, also exceeding forecasts. The Fed officials will meet again next month, and Thursday's CPI and Friday's PPI data will play a crucial role in their rate decision, since inflation has been on a downward trend over the past year.

However, lurking in the background is a sharp increase in initial jobless claims, which rose by 258,000 in the week ending October 5. This spike seems to be a consequence of "Hurricane Helene". While the market's reaction to the unemployment claims data is understandable, it may be premature given the temporary nature of the factors involved.

Last week's strong non-farm payroll data eased concerns about the labor market, leaving the timing and pace of future Fed rate cuts uncertain. Fed Vice Chair Philip Jefferson stated on Wednesday that he would prefer "to make decisions meeting by meeting."

Overall, while the inflation data indicates upward pressure on prices, the labor market figures were weaker than expected. Given that the Fed prioritizes employment over inflation control, it suggests the central bank is more likely to maintain an accommodative stance. This, in turn, implies a greater likelihood of continued rate cuts at the next policy meeting. Lower interest rates are favorable for gold as they reduce the opportunity cost of holding non-yielding assets like gold.

Essentially, this is the "Fed put" in action—offering a strong, flexible form of support that instills confidence among market participants to move further away from the risk curve while keeping stock market declines relatively shallow, which continues to be viewed as a buying opportunity.

Stubborn Resistance May Lead to Bullish Reversal_1

Technical Analysis

After the US released mixed inflation and employment data, gold prices initially weakened but then rebounded.

From a structural perspective, the tug-of-war between bulls and bears in the 4-hour chart has been ongoing for quite some time. Following six consecutive sessions of mild declines and a brief breakout of the consolidation range, the inability of bears to break through could trigger a bullish counterattack. If this occurs, gold bulls may once again target the $2,660 range. This reflects the momentum supported by the strong US dollar and other factors bolstering the precious metals market. However, we believe that as the momentum potentially peaks again, the bulls are likely to face resistance at $2,660. The recommended strategy is to focus on buying low and selling high.

Trading Recommendations

Trading Direction: Buy

Entry Price: 2613

Target Price: 2660

Stop Loss: 2598

Valid Until: Oct 26, 2024 23:55:00

Support: 2602, 2600, 2595

Resistance: 2625, 2628, 2640

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