As of September 2, investors should resist the urge to hastily buy the dip in gold, as the ongoing correction had not yet fully played out its downside potential at that stage.
Tuesday's trading session fully confirmed this outlook. After the critical support at 4400 was decisively breached, the metal followed through to the downside, with early Wednesday trading briefly touching the 4300 level. This deep pullback from the 4700 peak down to the 4300 region has now essentially completed the entire downside projection I had previously outlined. At this juncture, the strategic approach needs to shift accordingly.
It's crucial to highlight that this cyclical adjustment in gold is approaching its conclusion, and a shift in market rhythm could occur at any time. Persisting with a blindly bearish stance is no longer advisable. This week is packed with high-impact data releases, including the ADP employment report on Wednesday, initial jobless claims on Thursday, and the crucial non-farm payrolls figure on Friday. These data points are poised to trigger significant short-term volatility and could very well serve as the catalyst that marks the end of this correction and sparks a trend reversal. Given the sharp decline that began in late August, this September jobs week has a high probability of being the pivotal turning point for the current cycle.
Reviewing the price action, gold plunged over 2% on Tuesday, hitting an intraday low of 4322, its weakest level since August 19, before settling near 4328. During Asian trading on Wednesday morning, the metal extended its weakness, sliding to a low of 4290. This breakdown is not merely a technical weakness; it's a confluence of bearish factors: the effective break of support at 4400 triggered trend-following selling, while rising US Treasury yields, a robust US dollar, and geopolitical tensions fueling inflation expectations have all combined to pressure prices. It's notable that the escalation of Middle East tensions and higher oil prices, which would typically boost gold's safe-haven appeal, have been completely overshadowed by the upward pressure from real interest rates. The haven bid has proven ineffective, keeping gold on a downward trajectory.
Examining the short-term picture, gold remains in a weak, range-bound pattern. The previously breached support at 4400 has now turned into formidable resistance. After such a steep and sustained drop, the metal is clearly oversold and ripe for a technical rebound. The key to a medium-term trend reversal still lies with the direction of real rates and the US dollar. There are two potential scenarios that could allow gold to regain its upward momentum: either cooling inflation expectations and reduced bets on Fed rate hikes, which would revive hopes for policy easing, or a dramatic and unexpected escalation in Middle East conflicts that destabilizes global financial markets and reignites gold's safe-haven demand.
Stepping back to the larger technical picture on the weekly charts, my primary concern is the overall trend structure. The recent sell-off has been aggressive, with consecutive bearish weekly candles suggesting a high degree of uncertainty about whether the prior bull market can be restarted. For September, gold is likely to trade within a defined range, with the key boundaries sitting between 4200 and 4600. It's hard to see prices escaping this zone in the near term. From Wednesday onwards, I no longer anticipate significant further downside and have begun preparing for long positions, closely watching the strength of any reversal. The quality of this week's rebound will be measured by gold's ability to reclaim the 4400 level. A decisive move above that would open up further upside, whereas sustained failure to break through would keep the metal in its weak consolidation pattern.
Turning to the domestic gold market, our bullish stance from July, which saw prices rally from 880 to a high near 1005 at the end of August, eventually peaked at 1010 before reversing sharply to a low of 950. While many believed 950 was a prime spot to buy the dip, I consistently advised caution and not to be swayed by various online opinions. Now that domestic gold has pulled back to the low-930s, it has finally arrived at the area where I planned to initiate trial long positions. I will begin to tentatively build a long book starting from the 930 zone. As for how high prices can climb in September, it's too early to tell. We'll need to wait for the batch of key US data this week before updating specific targets. For now, investors should remain attuned to the market's rhythm.
In summary, the downside potential from this correction is largely exhausted, and bearish momentum is waning. It's no longer suitable to chase the downside, but also not prudent to aggressively buy the dip just yet. Patience is required to let this week's data releases confirm a turning point, after which the next major trend should become clearer.