Gold Down, But Not Out; Charts Say “Upside Intact” as Just Below $1,800

By Barani Krishnan

Investing.com -- Is the gold rally already over? Not quite, according to chart signals, although $20 drops or more in a day can be quite unnerving to longs in the game.

The benchmark gold futures contract on New York’s Comex, December, settled at $1,798.10, down $17.40, or almost 1%. December gold finished up nearly 1.5% last week, extending for a fourth week in a row a rally that has delivered some 5% thus far to bulls who’ve been accumulating positions in the yellow metal.

The spot price of bullion, more closely followed than futures by some traders, was at $1,779.36 by 15:22 ET (19:22 GMT), down $24.28, or 1.4%, on the day.

“As long as gold, on a daily basis, closes above $1780, the short term uptrend is intact,” said Sunil Kumar Dixit, a technical chartist for gold who tracks the spot price. “Closing below that level may expose gold to further declines in the $1,760 - $1,750 range.”

Gold could remain boxed at just under $1,800 until the release of the Federal Reserve’s July meeting minutes on Wednesday.

The Fed minutes have taken on increasing importance after a blowout U.S. jobs report for July eased fears over the prospect of recession. Last week’s inflation data pointed to the largest monthly slowdown in consumer price increases since 1973.

Traders are currently pricing in a less hawkish Fed, with fed fund futures showing a greater chance of officials raising rates by 50 basis points when they meet in late September, instead of 75 basis points as they have done at their last two meetings.

Despite the less hawkish mood, the dollar surged on Monday to a one-week high, putting fresh pressure on gold.

“This could just be a technical move, with the dollar seeing some support after pulling more than 4% off its highs,” Craig Erlam, analyst at online trading platform OANDA, said, referring to the dollar-gold relationship. “Similarly, it's been a strong rebound in gold and $1,800 is looking like an increasingly significant barrier.”

Aside from the Fed minutes, there will also be July retail sales figures on Wednesday, which will be watched for indications on the strength of consumer spending after a slowdown in second quarter growth.

Economists are expecting an increase of just 0.1% in retail sales after a gain of 1.0% the previous month, with falling gasoline prices accounting for some of the slowdown.

Investors will also get an update on the cooling U.S. housing market, with July data on housing starts due on Tuesday, after falling to a nine-month low in June.