On Monday (October 28th), during the Asian trading session, spot gold maintained its intraday downtrend, with the gold price currently hovering around $2729 per ounce, plunging by more than $18 intraday.
Menghani noted that due to sustained interest in buying dollars, gold prices began the new week on a weaker footing. Bets on a smaller interest rate cut by the Federal Reserve and concerns about deficit spending have pushed up U.S. bond yields, which also weakened gold prices. In addition, a generally positive risk tone is seen as another factor putting pressure on gold.
The U.S. Dollar Index is currently near 104.55, up more than 20 points intraday.
The benchmark 10-year U.S. Treasury yield is holding steady near the 3-month high touched last week, which is expected to benefit the dollar and put pressure on non-yielding asset gold.
According to the "FedWatch" tool from the Chicago Mercantile Exchange (CME), the market estimates a 95.6% probability that the Federal Reserve will cut interest rates by 25 basis points at the November meeting, with a 4.4% chance of keeping rates unchanged. A month ago, the market almost fully expected at least a 25 basis point rate cut, with a 57.4% chance of a 50 basis point cut.
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Menghani pointed out that easing concerns about further escalation of conflict between Israel and Iran have hit gold.
According to a report in the Financial Times on Saturday, the Iranian military has signaled that Iran will not immediately retaliate against Israel.
How to trade gold?
Menghani noted that from a technical perspective, gold prices repeatedly failed to break through the $2748-2750 per ounce area last week or build momentum, which keeps bullish traders cautious. Furthermore, the recent range-bound price action over the past week or so indicates that traders are indecisive about the next phase of movement.
Menghani stated that, therefore, the prudent approach is to wait for gold prices to break through the aforementioned resistance or convincingly fall below the short-term trading range support near $2720-2715 per ounce before preparing for a stable near-term trend.On the upside, Menghani stated that if gold receives some follow-up buying and breaks through the $2,748-2,750 per ounce area, this should allow the gold price to retest the historical high near $2,758-2,759 per ounce, which was touched earlier this month.
Subsequent gains may push the gold price towards the $2,770 per ounce area, which represents the resistance level of the uptrend line over the past four months; if this barrier is broken, the gold price will head towards the psychological round number of $2,800 per ounce.
Menghani added that on the downside, once the gold price breaks below the $2,720-2,715 per ounce area, it may find good support near $2,700 per ounce, and a decisive break below this area would pave the way for further declines in the gold price.
After that, the gold price may accelerate its correction downwards, falling towards the support near $2,675 per ounce, and ultimately reaching the support area at the $2,657-2,655 per ounce level.
At 12:19 Beijing time, spot gold was reported at $2,729.20 per ounce.
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