Gold is sending conflicting signals. It produced a bullish trend continuation signal earlier in the day on a move over yesterday’s high, but then encountered a wall of resistance at a high of 1,970. As a result, gold fell significantly below Tuesday’s trade, prompting another test of the 100-Day EMA as support. The 100-Day moving average is currently at 1,938, and the 1,970 high completed another challenge of the 34-Day moving average as resistance. 1938 is a near term support level. Can Gold rally from here? Or is it follow through and break support?

Fundamental factors

While Monday’s rally is due to weak services PMI data from US, the previous down wave is due to strong NFP data. NFP data suggested that the Feds are far from pivoting yet. However, the weak PMI data shows the challenges in continuing the hawkish stand.

Meanwhile RBA and BOC both delivered a surprise rate hike this week. That showed that the central banks are far from being convinced that inflation is under control. This may give headwinds for Gold as USD strengthened at the backdrop of the surprise rate hikes.

However, it is a matter of time before the central banks pivot and that will allow Gold to rally. Moreover, troubles faced by economies worldwide will fuel the risk-off sentiment. While the risk-off sentiment will strengthen the safe-haven USD, it will also increase demand for Gold which is the ultimate safe-haven asset.

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