The past few trading months have certainly not been kind to Gold which has been repeatedly battered by investors from multiple directions.
Fundamental drivers in the form of heightened US rate hike expectations simply eroded appetite for zero-yielding Gold, while the bearish technical trend accelerated the downside pressure. With Gold currently finding comfort near yearly lows and showing little signs of recovering, the outlook remains tilted to the downside.
When analysing the trajectory of Gold, a trader can implement both technical and fundamental methods to gain insight into possible trends in the future. Technical analysis is simply using the past trends to predict the future. Digging deeper, this type of analysis is based on Dow theory which states that, prices trend, prices are a comprehensive reflection of all market forces and prices are repetitive. Regarding fundamental analysis, a trader focuses on the macroeconomic drivers that impact the supply and demand of a currency/commodity. These drivers could come in the form of monetary policy, economic growth, and core economic metrics.
Focusing back on fundamentals, for as long as expectations remain elevated over the Federal Reserve raising US interest rates and the Dollar stabilizing, Gold is poised to trade lower. It must be kept in mind that Gold has an inverse correlation with the Dollar. With the Greenback supported by the bullish sentiment towards the US economy, safe-haven demand, and rate hike speculation, this could offer nothing but pain for Gold. Although global trade tensions may promote risk aversion consequently boosting the flight to safety, Gold remains heavily influenced by the Dollars performance.
Away from fundamentals, the technicals remain heavily bearish on the weekly and monthly timeframe. Prices have ended August on a depressed note which marks the longest losing streak since 2013. With prices struggling to keep above the $1200 psychological level and heavily pressured by fundamental drivers, further downside remains on the cards. Technical lagging indicators such as the MACD and 20 Simple Moving Average point to further downside with all eyes on $1200. A solid weekly close below $1200 could encourage a further decline towards $1180 and $1161, respectively. If bulls manage to keep above $1200, then the yellow metal has scope to challenge $1220.
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