Gold Price Forecast: XAU/USD trades firmly near $3,400, sees resistance around $3,440
- Gold price clings to gains around $3,400 ahead of second estimate Q2 GDP data.
- The Fed is almost certain to cut interest rates in the September meeting.
- Fed’s Williams support interest rate cuts amid escalating GDP growth concerns.
Gold price (XAU/USD) holds onto gains near $3,400 during the European trading session on Thursday. The precious metal demonstrates strength as traders are increasingly confident that the Federal Reserve (Fed) will cut interest rates in the September monetary policy meeting.
Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.
According to the CME FedWatch tool, there is an 87% chance that the Fed will cut interest rates in the September monetary policy meeting.
On Wednesday, New York Fed Bank President John Williams also stated that there is need to push interest rates to neutral, citing Gross Domestic Product (GDP) growth risks, and ongoing economic adjustments. Williams kept the door open for interest rate cuts in the September meeting, however, he stated that officials want to see data before jumping on a conclusion.
Fed Williams’s dovish remarks on interest rates have weighed on the US Dollar. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades subduedly near 98.00.
Going forward, investors will focus on the United States (US) Personal Consumption Expenditure Price Index (PCE) data for July, which is scheduled for Friday.
In Thursday’s session, market participants will pay close attention to the second estimate for Q2 Gross Domestic Product (GDP) data.
Gold technical analysis
Gold price trades in a Symmetrical Triangle, which indicates a sharp volatility contraction. The upper border of the above-mentioned chart pattern is plotted from the April 22 high around $3,500, while the downward border is placed from the May 15 low near $3,180.86.
The yellow metal wobbles near the 20-day Exponential Moving Average (EMA) around $3,362.00, indicating a sideways trend.
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 an 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.
