Gold's rally might have reached a temporary short-term top

Gold prices have experienced significant signs that a price correction is underway. Today gold pricing continued to decline by an additional $24.40. This followed last Friday’s $14.00, or -0.53% price drop. The possibility that Friday’s modest decline was an indication that the recent bullish trend had concluded. 

Today Federal Reserve Chairman Jerome Powell spoke at the National Association for Business Economics conference. Powell's comments clarified that the previous 50-basis point rate cut should not be interpreted as a precursor to further 50-basis point cuts. Powell stated that any further cuts will be data-dependent and some of that data will be released this week, with the biggest economic report being the September jobs report, which will be released on Friday. 

Powell stated at a conference for the National Association for Business Economics that the latest 50-basis point rate cut should not be viewed as an impetus for more jumbo rate cuts. Powell stated that any further cuts will be data-dependent. This will include this week's jobs report. Currently, the FedWatch tool is giving a 62.9% probability of a 25-basis point cut at the November FOMC meeting, and a 37.1% chance of a 50-basis point cut.

Another aspect suggesting that gold may correct further is its amazing run-up this quarter. The third quarter concluded today resulting in the largest gain for a single quarter since the first quarter of 2016. Gold’s gains during Q3 were approximately 13%, or $300. This marks the fourth consecutive quarter of gains totaling around $768 (42%). This was the largest gain over four quarters since 2008.

Recent heightened tensions in the Middle East or China's monetary stimulus efforts have been sufficient to bolster gold prices. This supports our long-standing technical model that assumes gold futures could find a short-term top at around $2,700. 

The recent assassination of Hezbollah Secretary General Hassan Nasrallah by Israel has introduced further instability in the Middle East. Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets, said that it remains unclear whether this targeted action, following a series of covert operations and airstrikes, will lead to an Israeli ground offensive in southern Lebanon.

However, neither the heightened tensions in the Middle East nor China's monetary stimulus efforts have been sufficient to bolster gold prices. 

Our forecast calls for a correction taking us to either $2,630 or $2,590 based on Fibonacci retracement levels of wave three that spans from $2,350 to the all-time highs in gold futures above $2,700. 

Wishing you as always, good trading,