Gold Outlook: Fed’s intentions eyed

Gold’s price moved higher since our last report. In today’s report we intend to lay out the main fundamental challenges ahead for gold’s price including the negative correlation of the USD with gold’s price , the release of the Fed’s July meeting minutes, the Jackson Hole Symposium and developments in the Middle East. Finally, we will be concluding this report with a technical analysis of gold’s daily chart.

Gold reaches new record highs after USD weakens

We make a start with the negative correlation of gold’s price to the USD. Overall the weakening of the USD against its counterparts on Friday the 16  of the month was reflected with a strengthening of gold’s price, which reached new record highs.

The same was the case on a weekly level for the past week, in contrast to the week before where both trading instruments displayed a slight weakness. Hence we tend to preserve our bias for the negative correlation of the gold with the USD to be maintained in the coming week.

At this point, it should be noted that the yields of US bonds tended to rise since our last report and given the antagonistic nature of gold to US bonds may have not allowed gold bulls to extend the rise of the precious metal’s price to its full potential. We expect that should US yields rise further in the coming week, we may see them weighing on gold’s price somewhat.

On a less fundamental level, we note that a number of analysts note that gold traders have allready booked some profits from the recent surge of the precious metal’s price which could imply that sellers may have eased their pressure, thus leaving more space for gold bulls to play. 

The release of the Fed’s July meeting minutes and the Jackson Hole Symposium

On deeper fundamental level for the markets we highlight the Feds’ intentions as a factor that could also affect gold’s price. The markets currently expect the Fed to start cutting rates in its next meeting in September and continue to deliver another rate cut in the November meeting and a double rate cut in the December meeting according currently to Fed Fund Futures.

Despite the market’s expectations may be over fetched its dovish orientation is very clear. On Wednesday we get the minutes of the Fed’s July meeting. Should the document be characterised by a dovish tone thus verifying the market’s expectations it could provide support for riskier assets but also gold.

On Friday we highlight the start of the Jackson Hole Symposium and Fed Chairman Powell’s speech is expected to be closely watched by gold traders for any clues regarding the bank’s intentions.

As with the Fed’s meeting minutes, any dovish signals from the Fed Chairman could support gold’s price and vice versa, any comments implying a less dovish path on behalf of the bank could force the market to reposition itself adding selling pressure on the precious metal.   

Developments in the Middle East

On a deeper fundamental level, we also note the safe haven nature of the precious metal. Maybe the most interesting issue ahead for gold are the negotiations in the Middle East between Hamas and Israel, with the mediation of the US.

It should be noted that US Secretary of State Anthony Blinken has brokered a possible ceasefire and a hostage deal and Israel seems to be accepting it, yet on the flip side Hamas has not answered yet. Blinken also noted that it may be the last chance for a ceasefire in the conflict adding more pressure on the two parties to accept.

Yet there seem to be some thorns in the deal such as the end of war as such that Hamas is seeking, while Israel tends to view the ceasefire as temporary, the Israeli control over the Gaza-Egypt border, the return of displaced Palestinians, the return of hostages and of course the blame game which in turn may not allow for a deal to be struck.

Overall, should a deal be struck we may see the precious metal suffering some safe haven outflows as an easing of market worries may emerge. On the other hand should the ceasefire deal not be struck, we may see gold’s price getting additional support as uncertainty over the developments in the area may be enhanced.

Please note that both sides have made steps towards escalating the tensions in the area, for example Hamas threatening to restart suicide bombings in Israel, while the possibility of Israel proceeding military action at the border with Lebanon, should not be underestimated. .

Gold Technical Analysis

XAUUSD Daily Chart

• Support: 2480 (S1), 2390 (S2), 2290 (S3)
• Resistance: 2600 (R1), 2700 (R2), 2800 (R3)

On a technical level, we note that gold’s price stabilised just above the 2480 (S1) support line, after reaching new record high levels. For the time being we tend to maintain a bullish outlook for the precious metal’s price as the RSI indicator remains between the readings of 50 and 70, implying the presence of a bullish predisposition for the bullion.

Also we note that the precious metal’s price is forming higher peaks and higher troughs outlining the upward movement, which is supported by upward slope of the 20, 100 and 200 moving averages. Should the bulls maintain control over the precious metal’s price, we set as the next target for gold bulls the 2600 (R1) resistance level.

Yet we note that the precious metal’s price is practically in uncharted waters and stabilised after the price action hit the upper Bollinger band. Should the bears find a chance and take over, we may see the pair breaking the 2480 (S1) support line and aim for the 2390 (S2) support base. 

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