• Gold fell sharply on Friday but closed the week in the green.
  • Bulls failed to hold the price above the 200-day SMA.
  • Downward correction could extend toward $1,800 in the short term. 

After closing the previous three weeks in the positive territory, gold stayed relatively quiet on Monday and Tuesday but managed to regain its traction on Wednesday. Following a 1% increase mid-week, the XAU/USD pair preserved its bullish momentum and touched its highest level in a month at $1,834 on Thursday but retraced a large portion of its rally on Friday. Nevertheless, gold settled above $1,810 and registered small weekly gains. 

What happened last week 

At the start of the week, the risk-averse market environment provided a boost to the greenback. Reflecting the broad-based USD strength, the US Dollar Index (DXY) posted modest daily gains on Monday and extended its rally after the June inflation data on Tuesday, rising 0.6% on that day.

The US Bureau of Labor Statistics reported that annual inflation, as measured by the Consumer Price Index (CPI), jumped to 5.4% in June from 5% in May. This reading came in higher than the market expectation of 4.9%. Furthermore, the Core CPI, which excludes volatile food and energy prices, climbed to 4.5% on a yearly basis from 3.8%. 

Nevertheless, XAU/USD’s downside remained limited as buyers continued to defend the key support located at $1,800.

On Wednesday, FOMC Chairman Jerome Powell’s prepared remarks for delivery at the US Federal Reserve’s semiannual Monetary Policy Report to the US House Committee on Financial Services triggered a USD sell-off and allowed gold to push higher.

Powell reiterated that the monetary policy will continue to deliver powerful support and noted that it is still appropriate for policy to remain highly accommodative. "The job market is still a ways off from the progress needed to begin the bond-buying taper,” Powell added. The dovish tone caused the DXY to retrace the majority of Tuesday’s upside.

On Thursday, the data from the US revealed that the Initial Jobless Claims declined to the lowest level in nearly 17 months at 360,000 in the week ending July 10. Additionally, the NY Empire State Manufacturing Index improved to 43 in July from 17.4 in June, beating analysts’ estimate of 18 by a wide margin. On a negative note, the Fed reported that Industrial Production in June expanded by 0.4%, compared to the market consensus of 0.7%. Despite the mixed data, the DXY staged a modest rebound and caused XAU/USD to go into a consolidation phase ahead of the weekend.

Finally, the US Census Bureau’s monthly publication showed on Friday that Retail Sales increased by 0.6% in June, surpassing the market forecast for a decline of 0.4%. On a negative note, the University of Michigan’s Consumer Sentiment Index edged lower to 80.8 in July’s advanced estimate from 85.5 in June. Moreover, the 1-year Inflation Outlook component of the survey jumped to 4.8%, the highest level since August 2008, from 4.2%. Despite the mixed data releases, the dismal market mood helped the USD to continue to find demand ahead of the weekend and weighed on XAU/USD. 

Next week

There will not be any high-tier data releases during the first half of next week. During that time period, the USD’s market valuation is likely to drive XAU/USD’s movements within the boundaries of significant technical levels. On Thursday, the European Central Bank (ECB) will announce its Interest Rate Decision and release the Monetary Policy Statement. However, the ECB already unveiled its revised policy strategy and the bank is unlikely to offer any fresh insights into its policy outlook. 

On Friday, the IHS Markit’s preliminary July Manufacturing and Services PMI figures from Germany, the euro area and the US will be looked upon for fresh impetus. Rather than the headline figures, investors are likely to pay close attention to the underlying details regarding the input price pressures.

Economic Calendar

Gold technical outlook

On the daily chart, the Relative Strength Index (RSI) edged lower toward 50 on Friday, suggesting that the bullish momentum started to weaken. Additionally, buyers failed to keep gold afloat above the critical 200-day SMA, which is currently located at $1,825. Both of these developments suggest that XAU/USD could stage a technical correction in the near term before the next leg up.

On the downside, strong support seems to have formed at $1,800 (psychological level, Fibonacci 50% retracement of April-June uptrend). A daily close below that level could open the door for additional losses toward $1,790 (100-day SMA, 20-day SMA).

Resistances are located at $1,825 (Fibonacci 38.2% retracement, 200-day SMA), $1,834 (July 15 high, 50-day SMA) and $1,845 (static level).

Gold Daily Chart

Gold sentiment poll

Despite Friday’s pullback, the FXStreet Forecast Poll shows that half of experts remain bullish in the near term with a target of $1,826 on a one-week view. The one-month-view, however paints a mixed picture with experts splitting evenly between bullish, bearish and neutral biases.

Gold Sentiment Poll

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content

Recommended Content

Editors’ Picks

AUD/USD: China, Fedspeak probe bulls near 0.7100, Aussie inflation expectations eyed

AUD/USD: China, Fedspeak probe bulls near 0.7100, Aussie inflation expectations eyed

AUD/USD treads water around 0.7080, after rallying to the fresh two-month high, as the recent Fedspeak and headlines surrounding the China tariffs seemed to have poked the bulls. The Aussie pair traders remain cautious ahead of the monthly Consumer Inflation Expectations from Australia.


EUR/USD defends US inflation-inspired gains near 1.0300 at one-month high

EUR/USD defends US inflation-inspired gains near 1.0300 at one-month high

EUR/USD flirts with the 1.0300 threshold, after posting the biggest daily gains to refresh five-week high, as traders reassess the risk profile during early Thursday morning in Europe. The reduction in the US inflation numbers propelled hopes that Fed could ease on its rate hike trajectory.


Gold extends recovery towards $1,800 as hawkish Fed bets trim

Gold extends recovery towards $1,800 as hawkish Fed bets trim

Gold price has picked bids below $1,790.00 and is extending its recovery above the immediate hurdle of $1,792.00 amid a broader risk-on in the global market. The precious metal is expected to continue its upside run-up after a healthy correction to near $1,808.00.

Gold News

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: How to trap a hungry bear

Top 3 Price Prediction Bitcoin, Ethereum, Ripple: How to trap a hungry bear

Crypto markets moves higher. Placing a countertrend short is still ill-advised. Higher targets remain possible for all assets. BTC tests the lower half of an ascending channel for the third time. ETH continues displaying bearish divergence but underline market strength remains. XRP in a make-or-break situation.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!