Gold returns above $4,400; technical strength questioned

Gold has climbed more than 1% on the day, returning to above $4,400. The move trims some of the recent losses, but it remains unclear if it signals a shift in momentum for the metal.

Not exactly, however.

What explains the bounce in gold on this session?

A straightforward explanation lies in the technical picture. Last week's decline brought gold down to test the 50.0 Fibonacci retracement of the July-to-August rally, near $4,328. A rebound followed, but since last Friday the metal has slipped again.

This week's drop is pushing gold toward the 100-day moving average near $4,343. That level, along with the 50.0 Fibonacci retracement around $4,328, represents a critical threshold.

Thus, sellers face a significant challenge to push gold lower. They need to break through both the 100-day moving average and the 50.0 Fibonacci retracement — which also coincides with support from mid-August swing lows — in the $4,328-43 area to sustain further declines.

Might today's rebound open the door for further upside?

There is reason for caution. While a daily gain of more than 1% is positive, the short-term technical outlook does not yet favour buyers.

Since late August, gold has traded below both the 100-hour and 200-hour moving averages, indicating a more bearish short-term bias.

Last week's short-lived bounce did not reach that key resistance level, and the situation remains. Buyers need to break through the confluence of near-term resistance at $4,422-34 to build upward momentum.

Even if that happens, the 200-day moving average near $4,537 is likely to limit advances near term, barring a major shift in the catalysts that have dominated recently.

The underlying narrative remains essentially unchanged.

This poses a challenge for gold. The current market story is dominated by rising bond yields and the US-Iran conflict, both headwinds. Higher real yields historically weigh on gold, and that factor appears to be overriding any inflows linked to sovereign debt concerns.

The debasement narrative persists but has moved to the background for the time being.

For gold buyers, this means they are at the mercy of the bond market, particularly with yields at multi-year and multi-decade highs. That will remain the case until attention shifts back to inflation and fiscal risks, giving the debasement trade renewed prominence.

What would bring about that shift? The clearest path would be a resolution to the US-Iran conflict, but that appears unlikely for now.