Gold continues selloff as China manufacturing data worsens
Joe Perry May 2, 2022 4:13 PM
Until confidence returns that prices from China will move higher, Gold may begin trading in a range.
Fears of deflation caused by lockdowns in China have helped Gold continue its slide lower. Over the course of the last few weeks, the lockdowns in Shanghai and potentially Beijing have led to poor manufacturing data while inflation remains low. The NBS Manufacturing PMI for April was 47.4 vs 48 expected at 49.5 last. The Non-Manufacturing print was even worse at 41.9 vs 48 expected at 48.4 in March. Both prints are well below the 50 level, which is considered contractionary territory. China March inflation rate for March was only 1.5% YoY.
Gold (XAU/USD) has been moving aggressively lower since forming a shooting start on April 18th as fears spread that the lockdowns in Shanghai could be extended to Beijing. Gold put in a high of 1998.35 just 2 weeks ago and, thus far, has traded down to today’s low at 1854.68. Price today also broke through the 50% retracement level from the lows of August 9th, 2021 to the highs of March 8th. A confluence of support sits just below. This level consists of the following:
- The 200 Day Moving Average
- The downward sloping trendline from a longer-term symmetrical triangle
- The 61.8% Fibonacci retracement level from the above-mentioned timeframe
This support zone crosses between 1828.62 and 1834.91.
Source: Tradingview, Stone X
However, notice that the RSI on the 240-minute timeframe is diverging with price, an indication that Gold may be ready for a bounce. First resistance is at today’s high near 1914.68. Above there is horizontal resistance from April 21st at 1937.93 then a downward sloping trendline dating to March 8th near 1974.50.
Source: Tradingview, Stone X
Gold has been moving lower since March 8th; however, the selloff has picked up strength recently on fears of deflation due to lockdowns in China. The PMI data doesn’t give much hope that prices will rise anytime soon. Is Gold ready to bounce? The shorter-term timeframe RSI looks to be oversold; therefore a near-term bounce is possible. However, until confidence returns that prices from China will move higher, Gold may begin trading in a range.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.