In the fluid and often unpredictable world of financial markets, gold has experienced a notable price adjustment, decreasing to $3,296 per troy ounce. This movement comes amidst a backdrop of a depreciating US dollar, which historically tends to support higher gold prices. However, investor focus appears to be heavily skewed towards anticipating the Federal Reserve’s (Fed) future policy direction, overshadowing the usual correlation between the dollar’s strength and gold prices.
In the lead-up to what could be a pivotal shift in the Federal Reserve’s approach to monetary policy, speculation is rife. Market analysts and investors alike are closely watching for signs from Donald Trump regarding his choice for the next Fed chair, anticipated to be announced between September and October. The frontrunner for this position is expected to adopt a more lenient stance on monetary policy, a scenario that traditionally would favour an increase in gold prices owing to its status as a hedge against inflation.
Jerome Powell, the incumbent Fed Chair, has hinted at a conducive economic environment that could allow for a loosening of monetary policy, thanks to the stabilising effect of the absence of new trade tariffs introduced post-9 July. This suggestion of multiple interest rate cuts, in absence of further trade tensions, contrasts with the initial cautionary stance taken due to previous aggressive tariff introductions.
Recent data revisions have painted a picture of an economic contraction within the United States, with the final estimate showing a 0.5% shrinkage in Q1. This downturn has reinforced the argument for an imminent rate cut, in spite of the somewhat offsetting factors such as the fall in unemployment to a five-week low, alongside a surge in consumer spending, hitting an 11-year peak.
As investors parse through these mixed signals, their attention now turns towards the upcoming release of the personal consumption expenditures price index (PCE), a gauge of inflation closely monitored by the Federal Reserve.
On another front, the easing of geopolitical tensions in the Middle East has also contributed to the downward pressure on gold prices. Historically sought after as a safe haven during times of geopolitical strife, the reduced tensions diminish the immediate need for such assets, further contributing to gold’s recent decline in price. This has resulted in the asset being on a trajectory for its second consecutive weekly downturn.
From a technical standpoint, a closer examination of the XAU/USD pair reveals insightful trends. On the four-hour chart, gold prices have been fluctuating within a broad consolidation range around $3,344. A recent downward adjustment saw prices touching $3,291, showing potential for a corrective rebound towards $3,344 before possibly declining further towards $3,237. This scenario finds support from the Moving Average Convergence Divergence (MACD) indicator, which, despite being below zero, is trending upwards.
A glance at the one-hour chart for the XAU/USD pair showcases a downward wave pattern reaching $3,290, with a potential for a corrective uplift towards $3,344 while staying within the consolidation range. A breach below this consolidation range could potentially trigger further declines towards $3,237 or below, with the Stochastic oscillator’s movements from below 20 to sharply upwards towards 80 further verifying this outlook.
In summary, the current climate surrounding gold is one of cautious speculation, influenced by potential shifts in Federal Reserve policy and mitigated geopolitical risks. Technical indicators suggest a period of continued volatility, indicating a need for keen observation by investors.
This article has been prepared by the analytical department of RoboForex and is intended to offer a comprehensive overview of market dynamics. It is important to note that this analysis reflects the author’s personal perspective and should not be considered as trading advice. As always, RoboForex accepts no liability for trading outcomes derived from these recommendations and reviews.
