Gold's downside may be limited; key support near 2438.8 warrants attention.

On Wednesday,Foreign exchange gold dealer August 14, despite the USD remaining relatively stable, spot gold fell sharply, dropping by $17.48 or 0.71% to close at $2447.40 per ounce. FXStreet's chief analyst Valeria Bednarik pointed out in her analysis that day that gold prices experienced a significant decline. If gold prices clearly break below the Fibonacci support level at $2438.80 per ounce, further declines may be expected.

Analysts indicated that Wednesday's sharp drop in gold was primarily due to the latest US CPI report, which dampened market expectations for a substantial rate cut by the Fed next month. According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) rose by 0.2% month-on-month and 2.9% year-on-year in July. Although these figures were in line with market expectations, they did not present a larger rate cut window as anticipated.

Following the release of the CPI data, gold prices touched a low of $2437.85 per ounce, marking the intraday low. Gennadiy Goldberg, head of US rate strategy at TD Securities, remarked that the unexpected part of the CPI report was the accelerated rise in rents, leading to a rather disappointed market reaction. Despite June's "owner's equivalent rent" data hitting the lowest level since 2021, this indicator rose to 0.36% in July.

Additionally, the CME's FedWatch Tool showed that market expectations for a 50 basis point rate cut by the Fed in September had dropped from 50% to 36%. Tai Wong, an independent metals trader from New York, believed that the market had originally expected a more substantial rate cut, but current data suggest that the Fed may only plan a 25 basis point cut, which has pressured gold prices.

Bednarik further analyzed the technical outlook for gold. She noted that from the daily chart perspective, although the bearish potential is limited, gold is still hovering above the key support level of $2438.80 per ounce. While technical indicators have lost some upward momentum, they remain in positive territory. The Relative Strength Index (RSI) shows a downward trend but has not confirmed a new round of declines. Additionally, gold prices are still above all moving averages, with the 20-day Simple Moving Average (SMA) trading flat near $2417.50 per ounce.

Bednarik added that the 4-hour chart shows that gold may continue to decline in the short term, particularly if it drops below the Fibonacci support level. Technical indicators have significantly retreated from near-overbought areas and are currently hovering around the midline, still exhibiting a downward trend albeit losing some downward momentum. Meanwhile, gold prices have fallen below their 20-period SMA at around $2455.00 per ounce, but the 100-period and 200-period SMAs remain below the current prices, suggesting a low likelihood of a substantial drop.

Bednarik provided key support and resistance levels as follows: Support levels are at $2438.80 per ounce and $2426.90 per ounce, with resistance levels at $2458.70 per ounce, $2471.10 per ounce, and $2483.70 per ounce.

As of 09:24 Beijing time on August 15, the spot gold price was $2450.10 per ounce.

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