On Wednesday (September 25th), spot gold briefly broke through $2670 per ounce during trading, setting a new historical high, but then experienced a significant decline in gold prices, closing around $2656 per ounce.

Analysts point out that there is overbought on the technical side of gold, which puts downward pressure on the price of gold. The strengthening of the US dollar and US Treasury yields is also weighing on gold. In addition, there are reports that the United States is developing a temporary ceasefire plan between Israel and Hezbollah, which has cooled down risk aversion and impacted gold prices.

Spot gold hit a high of $2670.53 per ounce during Wednesday's trading session, but the gold price experienced a "high drop" and ultimately closed at $2656.55 per ounce.

Senior analyst Dhwani Mehta pointed out on Wednesday that on the daily chart, gold prices have entered an extremely overbought state and are facing the risk of adjustment.

Analyst Christian Borjon Valencia said that due to the rising yield of US treasury bond bonds and the strengthening of the US dollar, the gold price fell after hitting a record high of 2670 US dollars/ounce, but it still held 2650 US dollars/ounce. The momentum of gold is still bullish.

The yield of US 10-year treasury bond bonds rose 4.5 basis points to 3.775%. Meanwhile, the US Dollar Index (DXY) tracking the value of the US dollar against six other currencies rebounded from a 14 month low, rising 0.54% to 100.88.

The expectation of another significant interest rate cut by the Federal Reserve provides support for gold. Traders believe that there is a 60% chance that the Federal Reserve will cut interest rates by 50 basis points in November.

Major news of ceasefire in the Middle East

According to the latest report from American news website Axios, the United States is developing a temporary ceasefire plan between Israel and Hezbollah, and a related statement is about to be released.

(Screenshot source: Axios)

Axios reported that according to two US officials, one Israeli official, and two informed sources, the Biden administration is developing a new diplomatic initiative aimed at "suspending" the fighting in Lebanon and resuming negotiations on Gaza hostages and ceasefire agreements.

The White House may announce this initiative as early as Wednesday local time, attempting to prevent the escalation of the conflict between Israel and Hezbollah.

The White House announced on Wednesday that US President Joe Biden met with French President Emmanuel Macron on the sidelines of the United Nations General Assembly in New York to "discuss efforts to ensure a ceasefire between Israel and Hezbollah in Lebanon and prevent broader war.

US and Israeli officials said that after a phone call on Monday between White House National Security Advisor Jake Sullivan and Israeli Secretary of Strategic Affairs Ron Dermer, the two sides began discussing the new initiative.

A US official and a European diplomat revealed that the US has been discussing this idea with France, Israel, Lebanon, and several other Arab countries in the past two days.

A US official confirmed, "We are in talks with several countries regarding diplomatic solutions

An Israeli official said, "Netanyahu has given the green light to discuss this initiative

A source with direct knowledge of the plan told Axios that its purpose is to achieve a pause, provide space for negotiations on a broader diplomatic agreement to prevent a wider war, allow displaced civilians to return to their homes on both sides of the border, and provide new momentum for the Gaza ceasefire and hostage agreement.

In addition, the French Foreign Minister also stated that he is working with the United States to promote a 21 day temporary ceasefire between Israel and Hezbollah for negotiations. The temporary ceasefire plan will be announced soon.

How to trade gold?

Analyst Christian Borjon Valencia pointed out that gold prices are expected to continue their upward trend. However, due to the lack of catalyst, the price trend turned sideways on Wednesday. Once the catalyst is obtained, it may push the gold price to break through the current record high and move towards $2700 per ounce.

Valencia stated that from a momentum perspective, the Relative Strength Index (RSI) indicates that gold is in an overbought state, which could lead to a decline in gold prices before rebounding.

Valencia stated that if gold continues its rebound trend and breaks through the peak of $2670 per ounce so far this year, it is expected to challenge $2675 per ounce, followed by $2700 per ounce.

As gold continues to rise, the next target for gold prices is set at $2750 per ounce, followed by $2800 per ounce.

(Spot yellow daily chart)

On the other hand, Valencia added that if the gold price falls below $2650 per ounce, it is expected to test the September 18th high of $2600 per ounce. The key support level to be tested next will be the September 18th low of $2546 per ounce, followed by the 50 day simple moving average (SMA) of $2488 per ounce.