Gold prices declined during Wednesday’s early European trading session, pressured by a modest recovery in the US Dollar (USD). However, escalating geopolitical tensions in the Middle East and the Federal Reserve’s (Fed) dovish signals may provide a cushion against further losses.
The yellow metal’s performance is being closely monitored by investors, especially following the recent speech by Fed Chair Jerome Powell at the Jackson Hole symposium. Powell’s remarks suggested that the time might be right to begin lowering interest rates, a move that could reduce the opportunity cost of holding non-interest-bearing assets like gold, thereby supporting its price.
Market participants are also awaiting further insights from speeches by Fed officials Christopher Waller and Raphael Bostic, scheduled for later on Wednesday. These addresses could offer additional clues about the future path of US interest rates. Meanwhile, attention will soon turn to key economic data releases, including the preliminary US Gross Domestic Product (GDP) for the second quarter (Q2) and the Personal Consumption Expenditures (PCE) Price Index, which are due on Thursday and Friday, respectively. Stronger-than-expected data could bolster the USD, potentially capping gains for the USD-denominated gold price.
Market Dynamics: Gold Prices Lose Momentum, Rate Cut Expectations Provide a Floor
Geopolitical developments in the Middle East are also influencing market sentiment. Reports indicate that thousands of troops from special units have been mobilized for a large-scale military operation in the northern West Bank, marking the most extensive operation in the region since 2002. This operation is expected to last several days, adding to the global uncertainty that often supports gold as a safe-haven asset.
Investor interest in gold remains robust, particularly in light of expectations for falling interest rates. According to Bloomberg, gold exchange-traded fund (ETF) holdings increased by 15 tonnes last week, reaching their highest level in six months. Speculative interest is also on the rise, with net long positions of speculative investors growing to approximately 193,000 contracts in the week ending August 20, a level not seen in nearly four and a half years, as noted by Commerzbank’s commodity strategist Carsten Fritsch.
The latest economic data from the US presents a mixed picture. The Conference Board’s Consumer Confidence Index improved to a six-month high in August, rising to 103.3 from a revised 101.9 in July. On the other hand, the US Housing Price Index declined by 0.1% month-on-month in June, falling short of the market consensus for a 0.2% increase, according to the Federal Housing Finance Agency.
The CME FedWatch Tool indicates that the futures markets have fully priced in a 25 basis points (bps) rate cut in September, with a 34.5% probability of a deeper cut. Market sentiment currently points to a total of 100 bps in Fed easing by the end of the year.
Technical Outlook: Gold’s Long-Term Bullish Trend Intact Despite Short-Term Weakness
Technically, gold prices have edged lower, but the longer-term bullish trend remains intact. The precious metal is currently constrained below the upper boundary of a five-month-old ascending channel and its record high. However, the broader positive outlook persists as gold holds above the key 100-day Exponential Moving Average (EMA) on the daily chart.
The upward momentum is further reinforced by the 14-day Relative Strength Index (RSI), which remains above the midline near 64.70, indicating continued bullish pressure in the near term.
Key resistance for XAU/USD is seen at $2,530, where the all-time high converges with the upper boundary of the trend channel. A decisive break above this level could set the stage for a move toward the psychological barrier at $2,600.
On the downside, initial support is identified at the $2,500 mark. A breach of this level could trigger further declines, with the next support zone around $2,470, the low from August 22. If selling pressure intensifies, the subsequent level to watch is $2,432, the low from August 15.