Gold prices increased by $15, reaching $3649, in response to weaker consumer sentiment data from the University of Michigan. After peaking at $3675 earlier in the week, gold is finding stability. Market attention now turns to the upcoming Federal Open Market Committee (FOMC) decision. Comments from the Fed chair suggesting less worry about inflation and more concern for employment could boost gold prices further.

Technical Factors and Resistance Levels

Certain technical factors, including Tuesday’s highs and the current overbought conditions, may limit short-term gains. Expect resistance levels at $3750 and $4000. Geopolitical events also play a significant role. US attempts to push Russia toward peace talks over Ukraine could impact gold prices. Sanctions may support gold, while a peace agreement could decrease its attractiveness. With gold testing its upper range around $3649, today’s weak consumer data is driving this movement. The preliminary University of Michigan sentiment for September dropped to 65.2, missing estimates and indicating economic weakness. Next Wednesday’s FOMC decision will be crucial for the upcoming weeks. We’re watching to see if the Fed shifts focus towards job concerns, especially after last week’s report showed only 95,000 new jobs in August. However, with August’s Consumer Price Index (CPI) steady at 3.4%, any soft comments from Powell could signal a green light for gold bulls. This uncertainty is prompting many traders to hold back on significant positions until they hear from the Fed chair.

Potential Strategies for Traders

If Powell indicates a dovish shift, traders might consider buying call options to take advantage of a possible price increase. A breakthrough above the recent high of $3675 would lead to the next major psychological level. Strike prices near $3750 for October expirations could balance risk and reward well, similar to previous setups before late 2023 rallies. Conversely, if the Fed maintains a hawkish stance focused on inflation, the overbought conditions might lead to a sharp decline. In this case, buying put options with strike prices under $3600 would be a logical strategy to protect against a failed breakout at the $3675 resistance level. The ongoing geopolitical situation continues to support gold prices. Any escalation in US pressure on Russia regarding Ukraine could enhance gold’s safe-haven demand, possibly boosting any rally triggered by the Fed. For now, we view this as a bullish factor, as a peace deal seems unlikely. Create your live VT Markets account and start trading now.

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