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Gold Prices May Struggle Despite China Stocks Drop as FOMC Looms

Gold Prices May Struggle Despite China Stocks Drop as FOMC Looms

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  • Gold prices modestly higher as Chinese stocks sink, trigger risk aversion
  • Beijing banned ed-tech profit-making and IPOs, souring the market mood
  • All eyes on FOMC meeting as US Dollar, yields offer conflicting influence
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Gold prices are idling near the US$1800/oz figure, with traders seemingly caught between conflicting influences. A bout of risk aversion triggered mid-month pulled down bond yields – offering relative support to non-interest-bearing bullion – but also drove haven demand for the US Dollar. That undercut the appeal of anti-fiat alternatives.

When sentiment began to recover last week, this dynamic reversed: rates edged higher and the yield curve steepened while the US Dollar backtracked. This was not especially helpful for getting a steer on gold prices, producing another set of conflicting capital flows (albeit in the opposite direction). Not surprisingly, the yellow metal remained stuck in familiar territory.

The spotlight now turns to this week’s FOMC meeting. The markets will be keen to parse the central bank’s guidance for clues about an upshift in the timing of stimulus withdrawal – beginning with a tapering of QE asset purchases – as inflation overshoots forecasts and threatens to bleed into consumers’ expectations, thereby becoming stickier and more worrying than officials have anticipated.

For now, a quiet day on the economic calendar is unlikely to inspire trend development. A risk-off sentiment tilt has helped a bit as yields tick lower, but any lasting liquidation is also likely to boost USD and cap gold gains. A sharp drop in Chinese shares seems to be the culprit after Beijing banned education technology firms going public, making profits or raising capital. The sector is valued at close to US$100 billion.

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Gold prices turned lower as expected after carving out a bearish Evening Star candlestick pattern, but a break of near-term support in the 1797.63-1808.40 zone remains elusive for now. A breach confirmed on a daily closing basis may expose the 1755.50-64.73 area next.

Looking topside, a dense resistance block sits just above the latest swing top and extends upward to 1870.75. If prices manage to establish a foothold above this barrier once more, a drive through the 1900/oz figure to challenge June’s high at 1916.53 may be in the cards.

Gold price chart - daily

Gold price chart created using TradingView


--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.