The precious metal started the week optimistically, closing the first session of the week at a record level, above 4,355 USD/ounce. However, at the beginning of the trading session on Tuesday in London, selling pressure suddenly increased and quickly became a "tsunami", causing gold and silver to record the strongest decline in many years.
Although the plummeted rally has slowed the momentum, some experts say the technical damage is insignificant as prices continue to hold the key support level of $4,000/ounce - at least for now.
Gold is heading for a weekly close above $4,100/ounce as inflationary pressures remain high but do not increase sharply. Meanwhile, preliminary data from the University of Michigan shows that consumer confidence in the US has fallen to a 5-month low.
Spot gold is currently trading around $4,111.20 an ounce, down 3% from last weekend.
Lukman Otunuga - Director of Market Analysis at FXTM - commented: "Gold prices recovered in the last session of the week after lower-than-expected inflation data, reinforcing expectations that the US Federal Reserve (FED) will cut interest rates next week. However, technical signals are still in favor of the selling side, as weak prices below the 4,050 USD/ounce mark could open the way back to 4,000 USD/ounce or lower".
Michael Brown - Senior Analyst at Pepperstone - expects gold prices to fluctuate in the range of 4,000 4,400 USD/ounce in the short term, with the risk of increasing as global public debt continues to escalate and central banks increase gold purchases.
"The upward trend in the market has not ended, but is only "resting to regain strength". The recent adjustment is the result of a steady, too fast and too strong increase, forcing the market to cool down when the new cash flow is more cautious and long-term investors take advantage of taking profits" - he said.
Neil Welsh - Head of metals at Britannia Global Markets - also said that the market has not yet reached a peak and emphasized the need for a cooling pace.
Recent fluctuations are more like a constructive correction than a reversal. Long-term factors such as persistent inflation, central banks net buying gold, geopolitical instability and expectations of the Fed continuing to cut interest rates remain strong.
Prices may fluctuate between $4,000-$4,200/ounce to create a foundation, but the factors driving gold up in the long term are still convincing. The journey from $4,100 to $5,000 an ounce may take more time, but this correction could attract bottom-fishing buying power, he said.
Next week, US economic data will continue to be limited as the National Assembly has not yet approved the new budget package; but the focus is on the Fed's monetary policy decision.
Although inflation remains above the 2% target, many analysts do not believe that this will hinder the current easing cycle. According to the CME FedWatch tool, the market is almost certain that the FED will cut 25 basis points next week and is also expecting another cut in December.
Some experts say that with gold still above the support level of 4,000 USD/ounce, the market has reflected most of the expectations for the FED's interest rate cut cycle.
Naeem Aslam - Investment Director at Zaye Capital Markets - warned: "The loss has been somewhat reflected in prices and there is a possibility that the peak this year has appeared. Gold prices could re-assess the $3,800 support zone over the next few days as the FOMC could put pressure on prices.
Before the FOMC meeting, the Bank of Canada will announce its policy on Wednesday morning, while the Bank of Japan will make a decision in the early morning of the same day. On Thursday morning, the European Central Bank (ECB) will hold a monetary policy meeting.
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