Gold prices continue to trade around their all-time high from last Friday at $3,378.91. Although the market opened this week with positive momentum, gold does seem to be digesting those gains and holding firm in a smaller trading range. This activity comes in the wake of recent statements from US Federal Reserve Chair Jerome Powell during the Jackson Hole Symposium, which influenced market expectations regarding monetary policy and currency strength.
At the moment, investors are interpreting Powell’s remarks as dovish, and pricing in a rate cut as early as March 2024. The Federal Reserve’s stance on interest rates is one of the biggest drivers of gold prices. Considering the recent occurrences, XAU/USD is capable for short-lived bullish perspective.
Market Response to Federal Reserve Signals
The headfake that Jerome Powell threw at the Jackson Hole Symposium has been reverberating across financial markets. Powell’s surprise dovish shift has dialed back some of that strong-dollar expectation, which usually puts a lot of downward pressure on gold. His definition also requires inflation to remain under 2% for some time. If jobless claims suddenly increase a lot, the Fed may choose to cut interest rates.
As things stand now, market participants are wagering on an 85% +/‐ chance of a 25 basis points cut in September. As we commonly see with investors in the gold market, they are reacting to shifting rates. They expect that lower rates will increase demand for gold’s appeal as a non-yielding asset. In that case, lower interest rates would lower the opportunity cost of holding gold, making it more attractive and bidding its price higher.
Investors are looking forward to the next series of Federal Reserve meetings, particularly in December! They’re betting the farm on at least one more 25 basis points cut. This will likely add to the bullish case for XAU/USD as traders preload on bets to capitalize on possible upside.
Technical Analysis of Gold Prices
The XAU/USD is a very bullish trend. Should this momentum continue, it might drive prices upwards into the $3,400 resistance threshold and potentially beyond. Plus, a mildly bullish 20 Simple Moving Average (SMA) has started to pick up speed northward, indicating rising upward impetus. Most importantly, it is about to cross above the longer-term 200 SMA, which usually signals that a strengthening trend.
Strong support levels for XAU/USD are found at $3,350.50, $3,337.60 and $3,319.00. These levels are key reversal points pivotal for traders to gauge possible price pullbacks. On the flip side, the resistance level is figured at $3,378.90, $3,391.20 and $3,405.80.
The daily chart for the XAU/USD pair is bearish-neutral to bullish. That says to us that there might be some ups and downs, but the trend overall is pointing to a continued recovery that should push prices upward.
Upcoming Economic Indicators
Market participants are looking ahead expectantly to the publication of the July Personal Consumption Expenditures (PCE) Price Index. Release date is this Friday. This key economic indicator will provide insights into inflation trends and consumer spending patterns, factors that heavily influence the Federal Reserve’s monetary policy decisions.
If the PCE data indicates stickier inflationary pressures at minimum it would call into question the dovish pivot foretold by Powell. A surprisingly strong rebound in consumer spending could make gold prices fall, too. Should that data point to a continuing moderation in inflation, the market will likely increase the odds of an earlier rate cut. That’d push gold prices even higher.