Ascending Brilliance: Gold’s Price Action Energized by Falling Wedge, Eyes on $1,980 and Fed’s Inflation Metrics
The gold price (XAU/USD) is tracing mild upward trajectory, ascending to its highest pinnacle in four weeks, thus validating a promising bullish chart pattern in the early hours of Thursday. The gain stands at 0.10% intraday, positioning itself near the $1,945 mark as of the latest update. Amid this movement, the lustrous metal is rejoicing in the face of a weakened US Dollar, fueled by the broad spectrum of economic struggles. Simultaneously, optimism looms with the prospect of China’s stimulus initiatives, a prospect that is heartening for gold enthusiasts. Yet, a sense of prudence envelops the market, stemming from the impending release of the United States Core Personal Consumption Expenditure (PCE) Price Index for August, which is the Federal Reserve’s (Fed) preferred metric for inflation.
Gold Price Seizes Momentum Amid Federal Reserve Policy Speculation and China’s Economic Rebound Despite the current tone of caution within the XAU/USD trading space, gold prices are enjoying an influx of bids, resulting in multi-day highs. This unexpected buoyancy can be attributed to the dampened sentiment regarding the hawkish trajectory of the Federal Reserve’s (Fed) policies. This sentiment has been intensified by the recent underwhelming economic indicators from the United States. Adding to the tailwinds, the prevalent positive outlook on China, a colossal consumer of gold, has lent further support to the gold market.
The recent disappointment stemming from Friday’s Nonfarm Payrolls (NFP) release has acted as a magnetic force, drawing gold buyers into the fold. This can be attributed to the unexpected plunge in the ADP Employment Change data, which recorded a mere 177K jobs added in contrast to market predictions of 195K, and the previous figure of 371K (revised from 324K). Concurrently, the second readings of the Gross Domestic Product (GDP) Annualized for the US Q2 illustrated a contraction to 2.1% from the initial projection of 2.4%. Correspondingly, the GDP Price Index reflected a decrease to 2.0%, diverging from the initial readings of 2.2%. The preliminary readings of the Personal Consumption Expenditures (PCE) Prices painted a similar picture, exhibiting a decline to 2.5% from the previously estimated 2.6% for the same period.
It is imperative to highlight that an ensemble of indicators, including US Consumer Confidence and activity metrics, as well as housing market data, has steered the market discourse towards dovish expectations regarding the US central bank’s policies. This dovish sentiment has taken a toll on the US Dollar’s valor, subsequently bolstering the gold price in the process.
Further buoying the gold market, China’s robust response to US allegations of risky business conduct has introduced a degree of uncertainty to the Sino-American negotiations in Beijing. This incident momentarily overshadowed the optimism surrounding the talks. However, Chinese banks intervened by decreasing mortgage rates, igniting hope for an additional wave of stimulus measures by the Asian powerhouse. This turn of events succeeded in repairing sentiment, offering a lifeline to the gold buyers.
Navigating the Landscape: Catalysts Galore Testing XAU/USD Bulls As the dovish specter of the Federal Reserve’s policies intertwines with the positive outlook for China, gold prices march forward. Nevertheless, the road ahead is paved with challenges, as an array of economic indicators from China, the United States, and the Eurozone lie ahead, awaiting to test the mettle of XAU/USD bulls. Among these, the initial challenge arises from China’s National Bureau of Statistics (NBS) Manufacturing PMI and Non-Manufacturing PMI data for August. Subsequently, attention shifts to the Eurozone, where the Consumer Price Index (CPI) will be examined, alongside the European Central Bank’s (ECB) preferred yardstick for inflation, the Harmonized Index of Consumer Prices (HICP).
Nevertheless, the crowning jewel of this intricate puzzle remains the US Core Personal Consumption Expenditure (PCE) Price Index for August, a metric that holds the key to deciphering the impending movements of the gold price.
A Glimpse into Gold Price’s Technical Landscape The gold price’s ascension remains firmly ensconced within the radar of buyers, having confirmed the formation of a bullish chart pattern that spans four months, known as a falling wedge. This bullish trajectory is further endorsed by affirmations from technical indicators, notably the Moving Average Convergence and Divergence (MACD) indicator, and the Relative Strength Index (RSI) line, which currently resides at 14.
However, a word of caution surfaces with the rapidly approaching RSI line as it inches closer towards the overbought territory. This phenomenon, in turn, suggests that the potential for further upside within the XAU/USD might be limited.
In light of these factors, a horizontal expanse encompassing various levels, delineated since late May and positioned around $1,984–85, as well as the year’s zenith that emerged in May, proximate to $2,067, stand as formidable obstacles for gold buyers during the pursuit of the theoretical target emanating from the falling wedge breakout, situated around $2,140.
On the flip side, the prospect of a Gold Price pullback remains an elusive concept, unless it maintains its position above the 50-day Simple Moving Average (SMA) level, which is currently at $1,930.
Should a pullback occur, the 200-SMA and the 61.8% Fibonacci retracement level of the ascent observed between February and May, which is often referred to as the Golden Fibonacci Ratio, are poised to test XAU/USD sellers at approximately $1,913 and $1,910, respectively.
Above all, the gold buyers retain their optimism as long as the commodity remains above the lower boundary of the falling wedge, nestled around $1,883 at the time of writing.