Gold Technical Analysis: Gold Rebounded Weakly

The bearish market for XAU/USD gold price pushed prices towards the support level of $1902 an ounce.

• In the last trading session of the week, the XAU/USD gold price recovered towards the resistance level of $1935 an ounce.
• This changed the price direction from bearish to a bullish weekly closing.
• The price of gold is stable around the level of 1925 dollars an ounce, at the beginning of trading this week.
• The announcement of the US job numbers was a good reason for the recovery of the gold price, which brought some losses to the price of the US dollar.

The recent decline in the XAU/USD gold price has caused traders to retreat into it, adding to the bearish trend and apathy. But this healthy selling accomplished its mission of rebalancing sentiment, eliminating early May greed and overbought. This has led to a reset of technical indicators for gold, making them very optimistic. And after being cut lower near key support areas, the yellow metal is well set to start a rally soon and resume choppy. In general, the pessimistic psychology of gold today is fueled by the recent price movement.

The price of gold rose in early May, extending its recent bullish gain to 26.3% in 7.2 months. But since then, the price of gold has fallen to sideways levels at equilibrium. At its worst last week, gold’s overall decline since its recent temporary rally has grown to 6.9% in 1.8 months. Gold fell from $2050 to $1908 an ounce in that period, which really hurt sentiment. All in all this pullback was necessary, as the price of gold was dangerously overbought as greed ran rampant in early May. The price of gold has soared so fast that it is up 13.2% above the 200-day moving average! Almost everyone was completely bullish on the yellow metal, expecting a continuation of its strong gains. This was really unbalanced.

In general, the confluence of several factors led to the recent decline in the price of gold. The main factor was speculators selling gold futures contracts on higher odds of an increase in US interest rates. Better-than-expected economic data and hawkish Fed speaking from senior officials broke out. This also often disturbs the US dollar, which is the main trading benchmark for gold futures speculators. The dollar’s rally triggered more selling, exacerbating gold’s decline.

Overall, the resulting slump in gold prices increasingly discouraged investors, who pulled more capital out of gold as sell-offs intensified. The gold price momentum is being driven by herd psychology and most of that has been to the downside in the past two months. This creates vicious circles of capital outflows of its own accord. The more investors sell, the faster the price of gold will fall, the further they will fall, and the more they will sell!

Gold’s increasing pessimism has only intensified as stock markets have surged into this AI bubble. When public stocks rise impressively, investors forget the wisdom of wisely diversifying their stock-heavy portfolios with countermovement gold. Compounding the psychology, June is seasonally the weakest time for gold in the heart of the summer slump. All of which led to a bearish fumble.

While gold has been tracking below its seasonal average in recent weeks as this decline grows, it’s not by much. The price of the yellow metal is generally zigzagging around 5% in either direction as it entered the market in the summer. At worst last month, gold was still well within this summer slump’s trading range, down just 2.8%. This normal seasonal weakness resulting from the infrequent large spikes in gold demand is already beginning to pass.

The summer slump can be more accurately called the June slump, because this is the peak month. On average in June during recent gold bull years, the price of gold has fallen by 0.2%. Last month proved to be a lot worse with gold already in the market this summer, with gold losing 2.3%. But gold tends to rebound strongly from there, averaging gains of 1.1% in July and then accelerating to 1.8% in August!

According to the performance on the daily chart below, the gold price, XAU/USD, is still in its downward track, despite last Friday’s rebound. As I mentioned before, there will be no reversal of the bearish outlook without moving prices towards and above the $1970 resistance an ounce. Gold bulls are awaiting more stimulus, and that may happen this week in the event that US inflation numbers come in below expectations, which negatively affects the course of tightening the Federal Reserve’s policy. Over the same period of time, the support at $1885 will remain important for more bears controlling the direction of gold and from it, and at least we will think about buying gold again.

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