The gold price (XAU/USD) has been facing significant selling pressure for the second consecutive day, resulting in a drop to a two-week low. This downward trend can be attributed to technical selling activities. However, the decline is expected to be limited due to certain supporting factors in the market. One such factor is the growing certainty that the Federal Reserve (Fed) will initiate a series of rate cuts starting in September. The expectation of lower interest rates has kept the US Dollar (USD) subdued, thereby benefitting gold prices. Additionally, the prevailing risk-off sentiment across global equity markets has also contributed to the support for gold, which is typically considered a safe-haven asset in times of market uncertainty.
The recent release of disappointing global flash Purchasing Managers’ Index (PMI) data has impacted global risk sentiment, leading to concerns about an economic slowdown. This has further bolstered the appeal of gold as a safe-haven investment. The data from HCOB’s preliminary survey indicated a weakening economic scenario in the Eurozone, particularly in the manufacturing sector. On the other hand, the S&P Global report highlighted a healthy expansion in the US private sector, with a noticeable uptick in the services industry. These contrasting economic indicators have added to the volatility in the market and influenced investor behavior towards gold.
Former New York Federal Reserve President William Dudley’s call for an immediate rate cut has reinforced market expectations for an easing cycle to begin soon. Traders have already priced in a 25 basis points cut in September, with further reductions anticipated in the later part of the year. Moreover, the prevailing political uncertainty in the US has also served as a supportive factor for gold prices. The upcoming US macroeconomic data, specifically the Advance Q2 GDP print and the Personal Consumption Expenditures (PCE) Price Index, are expected to provide more insights into the future direction of the market.
From a technical standpoint, the gold price has breached the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level of the June-July rally. This has signaled a bearish trend, with support levels identified at $2,385 and $2,370. Further downward movement could test support around $2,350. However, a reversal in the trend could encounter resistance at $2,400, with potential upside targets at $2,412, $2,423-2,425, and $2,469-2,470. The overall momentum in the market could push prices towards the all-time peak of $2,484.
The gold price has been facing selling pressure but is supported by factors such as Fed rate cut expectations, risk-off sentiment, and political uncertainty. Economic indicators and technical analysis suggest potential price movements in the near term. Traders and investors are advised to closely monitor market developments and key data releases to make informed decisions regarding gold investments.