Current trend

The XAU/USD pair is showing a slight decline, developing the "bearish" momentum formed at the end of last week, when the instrument retreated from its record highs near 2685.00. Quotes are testing 2655.00 for a breakdown, while traders are evaluating the US inflation statistics published at the end of last week. The Personal Consumption Expenditure Price Index in August slowed down from 0.2% to 0.1% month-on-month and from 2.5% to 2.2% year-on-year, compared to forecasts of 0.1% and 2.3%, respectively, while the Core PCE fell from 0.2% to 0.1% month-on-month and rose from 2.6% to 2.7% year-on-year. Overall, the data confirmed that inflation in the country continues to slow down, opening up new opportunities for the US Federal Reserve to further ease monetary policy. Investors expect two more interest rate cuts before the end of the year, and, as in September, they do not rule out the possibility of adjusting the indicator by 50 basis points at once.

At the end of the week, market participants will turn their attention to data on the US labor market, which will significantly influence the forecasts for borrowing costs in the near future. Nonfarm Payrolls in September may increase from 142.0 thousand to 145.0 thousand, and Average Hourly Earnings might decrease from 0.4% to 0.3% month-on-month and from 3.8% to 3.3% year-on-year, while the Unemployment Rate is expected to remain at the previous level of 4.2%.

Another factor supporting gold prices remains the growing geopolitical tension: analysts are closely monitoring developments in the Middle East after the Israel Defense Forces announced last weekend that they had eliminated the Secretary General of the Islamist armed organization Hezbollah, Hassan Nasrallah, and the movement's supreme command. Israeli Prime Minister Benjamin Netanyahu said the elimination of senior members of the group would help change the balance of power in the Middle East. Now markets are expecting an escalation of the conflict between the countries and mutual air attacks. This, combined with growing expectations of continued "dovish" monetary policy in the US, increases the attractiveness of metal assets as defensive instruments.

Support and resistance

Bollinger Bands on the daily chart show a steady increase. The price range is narrowing, reflecting the emergence of ambiguous dynamics of trading in the ultra-short term. MACD indicator tries to reverse downwards and is forming a new sell signal (the histogram consolidated below the signal line). Stochastic is showing similar dynamics, rapidly retreating from its highs, indicating the risks of overbought gold in the ultra-short term.

Resistance levels: 2655.00, 2670.00, 2685.56, 2700.00.

Support levels: 2640.00, 2623.84, 2613.83, 2600.00.

Trading tips

Short positions may be opened after a breakdown of 2640.00 with the target at 2613.83. Stop-loss — 2655.00. Implementation time: 2-3 days.

The return of the "bullish" trend with the breakout of 2670.00 may become a signal for new purchases with the target of 2700.00. Stop-loss — 2655.00.