Forecasting 3% to 4% profit taking opportunities in GoldForecasting 3% to 4% Profit-Taking Opportunities in Gold
Gold prices reached an all-time high today, driven by increased demand for safe-haven assets amid the approaching, last week’s highly competitive U.S. presidential election.
Gold has been steadily reaching new record highs, while other precious metals have also seen gains. However, silver prices have faced resistance near their 52-week peak.
In 2024, gold and silver prices have increased by approximately 35% and 52%, respectively.
In morning today’s US sessions, December gold futures hit a record high of $2,755.30 per ounce, while spot gold prices climbed to $2,740.60 per ounce.
An economic downturn would alter the dynamics affecting the prices of precious metals both silver and gold. Gold was supported by safe-haven demand as the conflict in the Middle East continued. Traders were anticipating Israel's response to Iran following an attack in early October.
Additionally, a 25-basis point reduction by the ECB suggested that major global central banks were positioned to implement further rate cuts, creating a lower interest rate environment that is expected to benefit gold and other non-yielding assets.
Overall, gold prices are considered overbought, yet a combination of factors is driving the current rally.
Despite the strengthening U.S. dollar, gold prices continue to rise, highlighting the ongoing inverse correlation between the U.S. dollar and gold, which adds downward pressure on gold prices.
A stronger U.S. dollar tends to make gold more expensive for investors holding other currencies, as gold is priced in dollars. When the dollar appreciates, it increases the cost of purchasing gold for foreign buyers, thereby reducing the metal's appeal as an investment. This inverse relationship between the dollar and gold often leads to decreased demand for the precious metal in times of dollar strength, as investors seek more affordable alternatives or move to other assets. Consequently, a rising dollar can weigh on gold prices, making it less attractive in global markets.
Short-term traders in the gold market are engaging in profit-taking, capitalizing on recent price increases. These traders, who typically seek to benefit from short-term fluctuations, are selling off their positions to lock in gains. This activity can temporarily pressure gold prices, creating volatility in the market, as selling momentum increases. Profit-taking is a common strategy when traders believe the asset may have reached or is approaching a life time high peak, signalling a potential pullback before prices stabilize or resume an upward trend.
Key Strategies Traders Should Consider Amid Gold Market Volatility
Considering recent market conditions, spot gold (XAUUSD) reached a high of $2,740.60 at morning US sessions, presenting a potential strategic entry opportunity for traders.
If profit-taking occurs and prices continue to fall, spot gold (XAUUSD) could test the 5-day moving average at $2,697.82. A break below this level may trigger a move towards the 20-day moving average at $2,660.41, with further declines potentially reaching the October 10 low of $2,604.15. On the other hand, if upward momentum persists, gold could attempt to set a new record high. However, based on my analysis, spot gold prices are expected to experience profit-taking, with a potential decline of around 3.00% to 4.00% from recent record highs in the coming days.
MCX December Gold Futures price of ₹78,460 per 10 grams reached an all-time high today, acts as a key entry point. Potential downside targets include ₹77,294 per 10 grams, the low from last Friday. A breach of this level could lead to a test of last Wednesday's low at ₹76,360 per 10 grams, with further declines possibly reaching last Tuesday's low of ₹75,766 per 10 grams. A drop below this level would indicate a significant downtrend, with the next support likely around ₹74,757 per 10 grams, this month's low (October 10 low).
Holding Period – Maximum 2/3 weeks.
In conclusion, the current dynamics of the gold market suggest that traders should remain vigilant as profit-taking appears imminent, with expectations of a potential decline of 3% to 4% from recent highs. Key technical levels, including the 5-day and 20-day moving averages, will serve as crucial indicators for market direction. Should gold prices breach significant support levels, such as those observed last Thursday and Wednesday, it may trigger further declines, warranting careful consideration of entry and exit strategies. Conversely, if upward momentum resumes, there could be opportunities for new record highs. As always, a thorough analysis of market conditions, combined with a disciplined trading approach, will be essential for navigating the evolving landscape of gold investments.
