- Gold prices stabilize temporarily, sitting just below $3,270, but further declines seem more probable.
- Traders adjusted their expectations, showing that Powell is not rushing into interest rate cuts.
- The US President remains optimistic about securing a trade agreement with China.
During Thursday’s trading in Europe, gold prices (XAU/USD) climbed nearly 1% to about $3,315, rebounding after reaching a monthly low around $3,270 earlier that day. This increase comes despite Federal Reserve Chairman Jerome Powell’s remarks confirming there’s no immediate plan to lower interest rates.
On Wednesday, Powell stated at a press conference that the current interest rate strategy is “appropriate” to mitigate the “risk of inflation,” maintaining rates in the 4.25%-4.50% range.
As the Fed holds rates steady, traders have shifted their outlook. The likelihood of an interest rate cut in September has dropped to 43.2% from 63.3% just the day before, as indicated by the CME FedWatch tool.
For non-income-generating assets like gold, prolonged higher interest rates create challenges for demand.
At the same time, a rising appetite for risk among investors has negatively impacted gold’s outlook, especially as Washington concludes several trade deals. Just before the looming tariff deadline on August 1, agreements with key trading partners, notably Europe and Japan, were reached. President Trump expressed confidence in making progress with China as well, stating, “We’re working well with China,” and suggesting that a favorable agreement is on the horizon.
With the easing of global economic tensions, the demand for safe-haven assets such as gold could diminish.
Gold Technical Analysis
Gold prices have bounced back towards $3,320, attempting to retest the failure of symmetrical triangle patterns in the daily chart. The 50-day exponential moving average now represents a critical resistance level near $3,320.
The 14-day relative strength index (RSI) has dipped to around 40.00. If the RSI falls below this threshold, it may indicate the emergence of renewed bearish momentum.
Looking ahead, if gold retreats below the support level of around $3,200, previously established on May 15 at $3,121, it may face further declines. On the other hand, breaking above the significant psychological barrier of $3,500 could lead to uncharted territory, with potential resistances at $3,550 and $3,600.
Gold Daily Chart
Gold FAQ
Historically, gold has been essential as a means of value and exchange. Beyond its allure, it’s now also seen as a safe haven asset, especially during turbulent times. Many also consider it a hedge against inflation or weakening currencies since it isn’t tied to a specific government or issuer.
Central banks, as major holders of currency, frequently purchase gold to support their currencies in challenging times. This diversifies their reserves and may boost perceptions of economic strength. In 2022 alone, central banks added 1,136 tonnes of gold worth approximately $70 billion, marking a significant increase in acquisitions. Countries like China, India, and Turkey are notably ramping up their gold reserves.
Gold typically moves inversely to the US dollar and US Treasury bonds, which are both seen as safe haven assets. When the dollar loses value, gold prices generally rise, offering a way to diversify assets during uncertain times. Conversely, a booming stock market tends to weaken gold prices, while downturns in high-risk markets may prop up demand for precious metals.
Many factors influence gold prices. Concerns over geopolitical instability or economic downturns can swiftly drive gold prices up due to its allure as a safe asset. Since it doesn’t yield returns, gold typically benefits from lower interest rates, while higher rates can weigh it down. Still, the primary determinant remains how the US dollar performs, as gold is priced in dollars (XAU/USD). A stronger dollar typically suppresses gold prices, while a weaker dollar can elevate them.
