Gold prices are currently under pressure, having dropped to around $4,120 after a brief recovery. Easing trade war concerns and a strong US Dollar have affected the value of precious metals lately. Gold reached its target at $4,005 but faced resistance just below previously established support levels. This suggests there may be a retest of the $4,000 mark. Recent meetings between the US and China have sparked optimism about a deal, influencing market sentiment and precious metals prices.

Technical Analysis of Gold Prices

From a technical perspective, Gold appears to be correcting after a significant rally. Indicators such as the 4-hour RSI and the US Dollar Index indicate further tests of the $4,000 support level. If Gold continues to fall, the $3,945 level is crucial, with $3,845 as another potential target. Resistance levels to watch include $4,160 and $4,185, with the high around $4,380. Globally, central banks are major buyers of Gold, increasing their reserves for currency stability. Gold often moves in the opposite direction of the US Dollar and is a safe asset during market downturns. Its price is affected by geopolitical events and changes in interest rates, typically moving against other major currencies and assets.

Gold Trading Strategies and Market Sentiment

With gold’s bearish trend growing stronger, the firm US Dollar is the main challenge. The Federal Reserve paused its rate cuts last week, following a CPI report showing core inflation at 3.1%, boosting the dollar’s strength. This makes testing the $4,000 support level for gold seem likely in the near term. For those expecting a break of this psychological level, buying put options is a smart strategy. We’re looking at November expiry puts with a strike price of $3,950 to benefit from a potential drop toward the next support area. The recent double top pattern supports this bearish view. However, we should remember the significant buying interest that historically emerges during major dips. Notably, central bank gold purchases reached record levels in 2022 and 2023, with the People’s Bank of China adding over 200 tonnes this year alone. This ongoing demand suggests that any drop below $4,000 might be temporary, creating a supportive floor for the market. Given this strong support, selling cash-secured puts or setting up a bull put spread with a short strike at or below $4,000 could be effective strategies for collecting premiums. This approach profits if gold remains above the key support level until expiration. With gold’s recent 35% rally, the premiums are quite attractive right now. We also recall how quickly sentiment can change, as seen during the US-China trade disputes in 2018 and 2019. Although current hopes for a deal are applying pressure on gold, any signs of trouble in upcoming negotiations could cause prices to surge. Thus, holding some longer-dated, out-of-the-money call options is a wise hedge against a sudden geopolitical shift. Create your live VT Markets account and start trading now.

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