Insights 
VT 
Technically Analyzing Gold
Gold (XAU/USD) has fallen by 1.75% to around $4,050 per ounce. Renewed US Dollar demand and profit-taking are the main factors contributing to this decline. The end of the Diwali festival in India, which typically increases Gold demand, is also expected to impact short-term physical demand negatively.
Traders are cautious ahead of the US Consumer Price Index (CPI) release for September. Although Gold is currently correcting, broader conditions such as the US government shutdown and ongoing US-China trade tensions provide support, reinforcing its appeal as a safe-haven asset. Market expectations lean towards the Federal Reserve cutting interest rates by 25 basis points in October and December. Lower interest rates reduce the opportunity cost of holding Gold, potentially stabilising its price.
Technically, Gold is consolidating within a symmetrical triangle pattern on the 4-hour chart. A breakout could follow the CPI release, with boundaries between $4,040 and $4,150 defining the near-term range. A break below $4,040 may lead to further declines towards $3,945, while a move above $4,150 could foster a rebound towards $4,220 or higher. The Relative Strength Index (RSI) suggests continued short-term bearish potential.
Market Anticipation Leading up to the CPI Report
We are seeing gold pull back to around the $4,050 level after touching a record high earlier this week, creating a tight consolidation pattern. Derivative traders are closely watching this range ahead of the US CPI inflation data due out later today. The market is anticipating a catalyst that could trigger a significant breakout from this current indecision.
Today’s September CPI report is the main event, with consensus forecasts expecting a slight easing in the annual rate to 2.9% from the 3.1% we have seen over the past two quarters. A number at or below this forecast would reinforce expectations for the Federal Reserve to cut interest rates, likely sending gold higher. However, a surprise jump in inflation could push the metal down towards the $4,000 psychological support level.
Given the potential for a sharp move after the CPI release, establishing a long straddle using options with a November expiration could be a viable strategy. This involves buying both a call and a put option near the current price, which profits from a large price swing in either direction. It is a direct play on the heightened volatility we expect to see later today and into next week.
The broader environment continues to support gold, largely due to the US government shutdown, now in its 24th day. Looking back, the 35-day shutdown in late 2018 and early 2019 was estimated to have reduced quarterly GDP by 0.2%, and similar economic concerns are fueling safe-haven demand now. This political uncertainty provides a strong floor for gold prices even if we see a temporary dip.
For those with a directional bias, a break above the $4,150 resistance level could be a signal to buy call options targeting a retest of the recent $4,380 highs. Conversely, a decisive move below the $4,040 support might prompt traders to purchase put options. This would be a bet that a strong inflation report or a stronger dollar will drive the next leg down toward the $3,945 area we saw earlier in the month.
