Gold prices (XAU/USD) experienced a setback on Tuesday, relinquishing gains made after hitting a record high. A lack of significant developments in top-tier economic data during a subdued trading session tempered the precious metal’s upward trajectory. However, factors such as renewed demand stemming from expectations of interest rate cuts by the US Federal Reserve (Fed), ongoing geopolitical tensions, and robust buying from central banks and Asian markets could provide some support to gold.
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Market participants will closely monitor statements from Fed officials, including Waller, Williams, Barr, Bostic, Collins, and Mester, scheduled to speak later on Tuesday. Additionally, anticipation surrounds the release of the Federal Open Market Committee (FOMC) Minutes on Wednesday. The hawkish tone adopted by Fed officials is anticipated to bolster the US Dollar and weigh on USD-denominated gold prices.
Market Movements: Gold Struggles Amid USD Recovery
Gold surged to a record high of $2,450 on Monday, while silver prices approached levels not seen in 12 years. Gold has seen an impressive 18% surge in value this year, while silver has recorded a notable 35% increase.
Federal Reserve Vice Chair Michael Barr emphasized the necessity of allowing restrictive monetary policy more time to take effect. Another permanent voting member of the Fed’s rate-setting committee, Philip Jefferson, noted that while inflation is easing, it is doing so at a slower pace than expected.
Atlanta Fed President Raphael Bostic highlighted the current restrictive nature of policy and expressed the need for patience before the central bank is confident about achieving its 2% inflation target.
Investors are pricing in a 76% probability of a 25 basis points (bps) rate cut by the Fed in September, with expectations of two cuts by year-end, according to the CME FedWatch Tool.
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Technical Analysis: Gold’s Outlook Remains Positive
Gold prices have retreated slightly, but the overall bullish stance remains intact. On a four-hour timeframe, the yellow metal continues to maintain a positive outlook, staying above the crucial 100-period Exponential Moving Average (EMA) with an upward slope. The Relative Strength Index (RSI) hovering around 69.00 suggests that the support level is likely to hold firm.
Further upside momentum could see gold attempting to breach the all-time high of $2,450, with the $2,500 psychological level representing the next significant hurdle.
Conversely, initial support is found at the former resistance-turned-support level of $2,420 for XAU/USD, followed by the $2,400 mark. A pivotal level to watch is the 100-period EMA at $2,355, which would signify a shift in sentiment if breached.
