Gold continues to sell off as China manufacturing data worsens

Until confidence returns that prices from China will rise, gold could start trading in a range.

fears of deflation caused by lockdowns in China helped gold to continue lower. Over the past few weeks, shutdowns in Shanghai and potentially Beijing have led to poor manufacturing data as inflation remains subdued. The NBS manufacturing PMI for April was 47.4 vs. 48 expected at 49.5 last. Non-manufacturing printing was even worse at 41.9 vs. 48 expected at 48.4 in March. Both drawdowns are well below the 50 level, which is considered contraction territory. China’s March inflation rate was just 1.5% year-on-year.

Gold (XAU/USD) has fallen aggressively since taking off on April 18and as fears spread that the shutdowns in Shanghai could be extended to Beijing. Gold hit a high of 1998.35 just 2 weeks ago and so far has traded down to today’s low of 1854.68. Today’s price also broke through the 50% retracement level from the August 9 lowsand2021 at the heights of March 8and. A supporting confluence lies just below. This level consists of the following elements:

  • The 200-day moving average
  • The descending trendline from a longer-term symmetric triangle
  • The 61.8% Fibonacci retracement level from the aforementioned period

This support zone passes between 1828.62 and 1834.91.

Source: Tradingview, Pierre X

However, note that the RSI over the 240-minute timeframe diverges with price, an indication that gold may be ready for a rebound. First resistance is at today’s high near 1914.68. Above there is horizontal resistance from April 21st at 1937.93 then a descending trendline dating from March 8and close to 1974.50.

Source: Tradingview, Pierre X

Gold has been falling since March 8and; however, selling has recently strengthened on fears of deflation due to lockdowns in China. The PMI data does not give much hope for prices to rise anytime soon. Is Gold Ready to Rebound? The shorter term RSI appears to be oversold; therefore a short-term rebound is possible. However, until confidence returns that prices from China will rise, gold may start trading in a range.

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