Last week, gold price practically rose without pulling back. Thanks to the upward movement, the bulls managed to break through the 1300 mark, but it did not manage to gain a foothold above this region. The dollar again seized the initiative, after which the price dropped to the level of 1289 and is currently declining.
It is worth noting that such a strong price jump assumed a corrective retreat. The bears of the XAUUSD simply needed appropriate information reason to prevent the bulls from settling above 1300, opening the way for further increase. But the dollar remained for almost two weeks under certain pressure, thus supporting gold.
The dark period for the American currency began with the publication of non-farm payrolls data: and although experts assumed the decline of the indicator is due to hurricanes, almost none of the analysts surveyed expected the indicator to fall into the negative area. The next blow to the dollar was from the Fed. The published minutes of the September meeting made the dollar bulls nervous, as regulators were concerned about low inflation in the context of a possible rate hike in December. The final development of the series of problems was the publication of September inflation in the United States. The consumer price index, although it showed growth, was worse than forecasts - and this fact was enough to make the dollar experience a new wave of selling.
The situation suddenly changed on Sunday. The head of the Federal Reserve, Janet Yellen, at a banking event in Washington, estimated the current situation in the US economy was exclusively on the positive side. She said that the US labor market continues to strengthen, and this fact requires the regulator to respond, which is raising the base interest rate "in the short term." This indicates that Yellen does not abandon the idea of raising the interest rate at the December meeting, despite the controversial nature of the latest data. Moreover, the head of the Federal Reserve expressed confidence in the growth of US GDP in the second half of the year, and optimistically estimated the outlook for inflation, given the dynamics of increasing average wages.
Thus, the likelihood of another round of tightening monetary policy by the end of this year has increased again. This fact has provided substantial support to the dollar, which from the first minutes of trading on Monday tried to regain lost ground.
At the moment, gold is close to the level of resistance 1288 (the average line indicator Bollinger Bands on the daily chart). This is the lower limit of the local price range, so this area is very risky for short positions. After all, we must not forget that gold is a protective tool, and the geopolitical situation in the world continues to be tense.
North Korea was the one to break the global peace once more. Yesterday, an official of this country at a meeting of the UN General Assembly said that the DPRK "under no circumstances" will not negotiate on nuclear weapons. Having voiced a knowingly impracticable demand (that the United States must first eliminate its nuclear arsenal), Kim Ying Ryong added that a nuclear war could begin at any moment on the Korean Peninsula.
The North Korean representative did not rule out the possibility of a diplomatic dialogue with the US, but on one condition - diplomacy will be addressed only after the DPRK has created an intercontinental ballistic missile. In other words, relations between countries remain extremely unfriendly, and the intensity of verbal threats has reached (in my opinion) its climax. It should be noted that all this takes place against the backdrop of joint US-South Korean military exercises and during the celebration of the anniversary of the founding of the ruling Labor Party of North Korea.
This factor suggests that the North Korean problem remains combustible, and any serious aggravation will affect the value of gold.
Now a few words about the optimism of Janet Yellen. In general, she had previously taken a rather decisive stance on the December rate hike. In late September, she stated that the regulator would not "pause" the process of normalizing monetary policy due to low inflation. Therefore, generally,, she did not say anything new this weekend, but dollar bulls were inspired by voiced optimism after a string of negatives.
It is also worth noting that the likely successor of Yellen - Jerome Powell - takes a more cautious stance. In particular, he recently said that tightening the Fed's policy would create difficulties for developing countries. Previously, he also called for a smooth approach to raising rates.
Summarizing the developments, it can be concluded that the decline in XAUUSD is reasonable, but not in the long-term. The dollar has not yet received sustained support, and the geopolitical situation remains tense: interest in gold may return at any time.
From the technical point of view, gold also exhibits a flat movement. On the daily chart, XAUUSD is in the Kumo cloud on the midline of the Bollinger Bands indicator. Overcoming the 1288 mark will open the way for further decline, but only to the next support level - 1280 (the lower boundary of the cloud Kumo). And only if the price is fixed under the above price, the indicator Ichimoku Kinko Hyo will form a bearish " Parade Line" signal. This factor will provide a price decline to the level of 1264 - this is the bottom line of the Bollinger Bands indicator on D1.
