At the end of last week, gold prices resumed growth and reached new record highs. On Monday, the yellow metal price exceeded the level of 2630 dollars per ounce for the first time. However, it seems to be more and more difficult to continue the upward movement without at least a small correction. Profit taking by the bulls may lead to a pullback in the price of gold to the level of 2590. Before that moment, opening of new long positions on the gold market may look unreasonable.
The Bloomberg analysts point out the further deterioration of the gold demand situation in China. In August, the country reduced imports of the precious metal to the 3-year minimum, while the year-on-year value fell by more than a third. Switzerland, one of the leading suppliers in the global gold market, completely stopped its exports to China last month. The reason for this is the excessive expensiveness of the yellow metal.
According to Reuters, last week chinese gold traders were forced to increase discounts compared to global prices of the metal. The size of the discount rose from 10 to 14 dollars per ounce. Song Jiangzhen from Guangdong Southern Gold Market Academy admits that the country’s population is lacking confidence in their income due to China’s weakening economy. Consumers are not ready to buy gold at current all-time high prices, so they are taking a wait-and-see approach.
As for India, the situation looks a bit better, but only due to the seasonal demand growth effect. Local discounts on gold are hovering around $20 per ounce. This is highly unusual for this time of year. As it’s said by Reuters sources on the Indian gold market, the price of the yellow metal is too high. According to their words, the new wave of price growth has already wiped out all the optimism caused by a sharp reduction in import duties. Ross Norman, CEO of Metals Daily, considers a correction in gold prices necessary to normalize the consumption.
The RSI indicator on the daily chart of gold has come close to the overbought zone and may soon signal a downward reversal. The first target of the pullback will be the level of 2590.
We can offer the following trading strategy:
Sell gold at the current price. Take profit — 2590. Stop loss — 2660.
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