- The U.S. Federal Reserve still temporarily abandoned tightening policy as it left the U.S. interest rate unchanged last week.
- This has a negative effect on the US dollar and in turn a positive effect on the price XAU/USDwhich jumped to the $1968 resistance level.
- The pair recovered from a selloff in gold that took it to a support level of $1,926 an ounce, a three-month low.
- Trading started this week steady around the $1958 per ounce level.
Quiet trading is expected today in light of the US holiday, before investors’ attention returns this week in light of expectations for testimony from US Federal Reserve Governor Jerome Powell.
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All in all, gold’s recent decline appears to have bottomed out, despite the Fed’s continued aggressive tightening. The yellow metal has consolidated higher in recent weeks, defying aggressive Fedspeak, another big surprise on US jobs, and hawkish price expectations from top Fed officials. This resilience, leading directly to a large seasonal decline in gold’s summer slump, coincides with speculators maintaining truly bullish gold futures positions.
Gold had a strong rally in early May, posting an impressive 26.3% gain in 7.2 months. But after quickly rising to $2,050 an ounce and breaking all-time record nominal highs, the price of gold was already on the rise. It was trading at 1132 times its 200-day moving average and gold was overbought. While you were still below the mortal danger zone, there was a health drop to rebalance morale.
That is exactly what has happened in the last few weeks. As the price of gold fell 5.4% to $1,941, with very hawkish statements from senior Federal Reserve officials playing a big role. While the sharpness and size of this mid-calf dip was normal, it quickly removed the excessive greed. Herd psychology slipped back into the negative as traders quickly forgot about gold’s strong influence leading up to it. Gold fell more and more.
Within weeks of the initial selloff, gold stalled. That was a consolidation high, in the middle of the top of gold’s bullish trading range. The technical damage of this decline was therefore very mild and certainly does not justify such pessimistic sentiments. However, the downside and apathy are at an all-time high in gold’s weakest season of the year, the dreaded summer slump. Earlier this week, the US Federal Reserve voted to keep the US benchmark interest rate unchanged at 5.25%, in line with expectations. However, expected interest rates for the current year have now risen to 5.6% from 5.1% in the previous update, while expectations for year 1 and 2 have increased to 4.6% and 3.4% from 4.3% and 3, 1%. The forecast for long-term interest rates remained unchanged at 2.5%.
In the near term and based on the performance on the hourly chart, the XAU/USD gold price appears to be trading within a bullish channel formation. This indicates a significant short-term bullish bias in market sentiment. Therefore, the bulls will look to extend the current gains towards $1966 or above the resistance of 1978 per ounce. On the upside, bears will try to pounce on a pullback around $1945 or below at $1933 support.
In the long term and from the performance on the daily chart, XAU/USD appears to be trading within a sideways channel formation after completing the double top reversal pattern. This suggests that the bulls are trying to prevent the bears from controlling the price. Bears will therefore look for a dip around $1.915 or lower to $1872 per ounce. On the downside, bulls will target long-term gains around $1,992 or higher at $2,033 an ounce.
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