Gold Price Forecast: XAU/USD declines as bulls hesitate near $3,400, US inflation in focus
- Gold price declines to near $3,350 amid uncertainty surrounding the US CPI data.
- The US inflation is estimated to have grown at a faster pace for July.
- Investors await Trump-Putin high-stakes meeting.
Gold price (XAU/USD) trades 1.2% lower to near $3,350 during the European trading session on Monday. The yellow metal faces selling pressure as investors shift their focus to the United States (US) Consumer Price Index (CPI) data for July, which is scheduled to be released on Tuesday.
Investors will closely monitor the CPI data as it will indicate whether the impact of tariff-driven inflation is one-time or persistent. June’s CPI report showed an increase in prices of products, which are largely imported into the US.
Economists expect the headline and the core CPI – which excludes volatile food and energy prices – rose at a faster pace of 2.8% and 3.0% on year, respectively.
Escalating inflationary pressures might force traders to reassess bets supporting interest rate cuts by the Federal Reserve (Fed) in the September meeting.
According to the CME FedWatch tool, there is an 88% chance that the Fed will cut the Federal Funds Rate by 25 basis points (bps) to the range between 4.00% and 4.25%.
Gold price performs strongly in a high-inflation environment; however, the maintenance of a restrictive monetary policy stance by the Fed bodes poorly for non-yielding assets, such as Gold.
Meanwhile, investors also await a high-stakes meeting between US President Donald Trump and Russian leader Vladimir Putin, which is scheduled for next Friday, to discuss ending the war in Ukraine.
Gold technical analysis
Gold price slumps to near $3,350 on Monday. The precious metal trades in a Symmetrical Triangle, which indicates a sharp volatility contraction.
The yellow metal corrects to near the 20-day Exponential Moving Average (EMA) around $3,357.00.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.
Looking down, the Gold price would fall towards the round-level support of $3,200 and the May 15 low at $3,121, if it breaks below the May 29 low of $3,245
Alternatively, the Gold price will enter uncharted territory if it breaks above the psychological level of $3,500 decisively. Potential resistances would be $3,550 and $3,600.
Gold daily chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
