On October 12, after more than a month of declines, gold staged a modest rebound last week. This week, let us continue to frame the discussion around a bearish outlook.
Gold edged higher during Monday's Asian session, touching a high near 4217, partly attributed to Trump's announcement of a Russia-Ukraine energy ceasefire. However, within hours the ceasefire was disputed, with Kyiv claiming Russian strikes on Ukrainian power plants while Moscow did not confirm. Gold's key transmission channel is oil rather than safe-haven demand: escalation drives oil prices and rate-hike expectations higher, weighing on gold. A credible ceasefire should be bullish, but this one rests on a fragile foundation, and historical precedent shows such ceasefires rarely last. The stronger drivers are Wednesday's U.S. CPI and Friday's Warsh speech, along with weekend attacks on Saudi Arabia. A strong inflation reading would have a far greater impact on gold than a fragile ceasefire. Gold remains about 25% below its January record, and its short-term direction depends on CPI, the Warsh speech, and the evolution of Gulf tensions.
Technical picture
Gold probed lower last week before recovering and closing higher with a small bullish candle. Early this week it may extend further, though bearish pressure has not yet eased. Even if a rebound occurs, another pullback is possible. Therefore, on a rebound toward the weekly middle band at 4246 and the 10-week moving average near 4340, beware of a renewed bear raid. On the downside, continue to watch the prior low and lower-band support near 3943, where another battle is expected on a pullback, and adjust based on fundamental guidance at that time.
On the daily chart, gold has been in a choppy decline since starting from 4696. Although it posted two consecutive rebounds last Thursday and Friday, the lower band has shown no sign of turning up or flattening, so gold remains weak. It is now approaching the daily middle band near 4226. As long as gold does not hold firmly above this level, I believe it will fall again. This decline has been riding the middle band lower in a choppy fashion, so in my view the recent rebound has once again offered a good entry opportunity to short.
On the four-hour chart, although gold rebounded after piercing the lower band, upside momentum weakened noticeably after approaching 4220. Short-term price action is at a contested threshold and is moving in a more choppy manner. Combined with the daily descending channel, the near-term bias is to look for declines first in the 4226-4246 zone.
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