Since the first quarter of this year, gold prices have tumbled over 12%. But do prices still have further to drop, or has the commodity now reached oversold territory, meaning a bounce could be imminent?
Safe Haven Status
While gold is traditionally considered a safe-haven asset, the trade spat between the US and China has encouraged investors to stay cautious so far.
Amid worsening diplomatic relations, hedge funds having been piling into the dollar over the short-term, estimating that any trade barriers raised by President Trump are far more likely to harm the Chinese economy than the United States.
If trade news deteriorates, then it is likely that gold could actually fall farther as the dollar builds on its upside momentum.
Another concern is the Federal Reserve meeting on September 26.
Although another quarter-point rise in interest rates was widely expected, the language contained in the Fed policy wording will be watched very closely by currency and gold investors to gauge the possibility of future rate increases.
Again, any hawkish stance signalled by the Fed could help the dollar gain at the expense of gold. Some traders predict that spot gold prices could drop and test support levels at $1,193 per ounce.
Nevertheless, despite the negative factors weighing on the current gold market, the bears are now showing signs of retreat. Reports over the last few days reveal that speculators have trimmed their net short positions on Comex gold.
The answer is simple: perhaps gold has been range-bound for just a little too long.
Indeed, the stale price action has led some to wonder if any fears over trade wars and interest rates are starting to dissipate early. This could lead to a brief but significant correction in the gold market.
Rumours are circulating that gold’s $25 dollar range (which has held steady for several weeks), could actually use the month-end as a springboard to take a sharp jump skywards. Investors even predict that a rise towards $1,230 – $1,240 is quite possible from current levels.
If so, now could be a really excellent chance to scoop up the commodity on the cheap before any potential breakout occurs.