Gold recorded its fourth down week in the past five, settling Friday at 4321 US dollars per troy ounce. Ongoing war and rising interest rates continue to pressure the metal, which has fallen from a recent high of 4755 reached on 25 August. The weekly parabolic long trend, a technical indicator used by some traders, is now at risk of flipping to short, with the flip level at 4190.
Price action and technical levels
The current settlement of 4321 leaves gold only 131 points above the parabolic trend's flip-to-short threshold of 4190. Given that the expected weekly trading range is 216 points, the long trend is in clear jeopardy. A regression trendline that has been positively sloped since mid-March 2023 is also nearing rotation to negative.
Below current prices, a support zone exists between 4316 and 3955. Within that zone lies what the analysis calls “The Floor” at 4000. Fair Value, a metric derived from the model used, is today calculated at 4001. The previous test of Fair Value in June, when it stood at 3979, immediately brought in buyers and eventually led to the August high of 4755. This suggests that even if the parabolic trend flips to short in the near term, any decline may be short-lived.
Macroeconomic pressures: war and rates
The war, which began in late February, continues to exert a negative effect on gold. The US dollar has strengthened as it is used to purchase oil, and that dollar bid has weighed on gold prices. The conflict shows no sign of a quick resolution, with some analysts suggesting it could extend into next year.
Interest rate expectations are also adding pressure. The August Personal Consumption Expenditures (PCE) report, due next week, is expected to show both headline and core readings at three-month highs. Fed funds futures are currently pricing the policy rate at 4.175%, above the current target range of 3.750%–4.000%, indicating the market leans toward another rate hike at the 28 October Federal Open Market Committee meeting. Conventional wisdom holds that rising interest rates are negative for gold, though historical data from this century does not always bear that out.
Key takeaways
- Gold settled Friday at 4321, its fourth down week in five.
- The weekly parabolic long trend is at risk of flipping to short, with the flip level at 4190.
- A support zone exists between 4316 and 3955, with “The Floor” at 4000.
- Upcoming August PCE data and Fed rate hike expectations add further pressure.
Common questions
What is the parabolic trend mentioned in the analysis?
The parabolic trend is a technical indicator that follows price movement and flips between long and short signals. Currently the weekly trend is long, but if price falls below 4190, it would flip to short, indicating a potential change in trend direction.
What is Fair Value and why is it important?
Fair Value is a model-derived level that the analysis uses to gauge whether gold is over or under priced. The current Fair Value is 4001. When gold last tested a similar Fair Value level in June, it prompted a buying response that led to a subsequent rally.
How does the war affect gold?
The war has boosted demand for the US dollar, which is used to purchase oil. A stronger dollar tends to weigh on gold prices. The conflict also creates uncertainty, but in this case the dollar bid has been the dominant factor, pressuring gold lower.
The coming weeks will see the release of August PCE data and the Fed’s next policy decision. Gold’s technical position is precarious, with support levels nearby that have historically attracted buyers. For the latest price, see the live gold price.