Gold Price Forecast: Geopolitical Calm Limits XAU/USD Volatility
Gold Price Analysis: Cautious Optimism Limits Gains
Gold (XAU/USD) experienced a subdued week, failing to recover significantly after an initial decline. Easing geopolitical concerns and a mixed bag of macroeconomic data from the US kept volatility in check.
Investors are now closely watching activity-related US data and upcoming commentary from Federal Reserve (Fed) officials for directional cues.
Gold's Retreat from $3,400
Early in the week, gold faced substantial selling pressure, dropping over 1.5% as safe-haven demand waned. Optimism surrounding potential resolutions to the Russia-Ukraine conflict, fueled by announcements of a possible meeting between US and Russian leaders, buoyed market sentiment.
Further dampening gold's appeal, the US delayed tariff implementation on Chinese imports, prompting China to reciprocate by suspending tariffs on select US goods and removing some US firms from its unreliable entities list—all for a 90-day period.
However, Tuesday saw gold find support around $3,350 as US inflation data bolstered expectations of multiple Fed rate cuts, pushing Treasury yields lower. The Consumer Price Index (CPI) showed annual inflation steady at 2.7% in July, with core CPI rising by 3.1%, exceeding June's 2.9% increase. The CME FedWatch Tool indicated a heightened probability (over 55%) of a 75 bps rate cut by the Fed this year.
Wednesday was uneventful, with gold trading in a narrow range. Thursday's Producer Price Index (PPI) revealed a sharp increase to 3.3% in July, up from 2.4% in June. This hot producer inflation data triggered a reassessment of the Fed's policy outlook, causing Treasury yields to rebound and gold to extend its weekly losses.
The week concluded with mixed US data releases – Retail Sales up 0.5%, Industrial Production down 0.1%, and the University of Michigan's Consumer Confidence Index falling to 58.6. However, these figures failed to significantly impact gold's price, leaving it near weekly lows.
Upcoming Catalysts: PMI, Powell, and Geopolitics
Geopolitical developments remain a key factor. Any escalation in the Russia-Ukraine situation could trigger renewed safe-haven buying in gold.
The Fed's July meeting minutes will be released on Wednesday. However, given the subsequent release of employment and inflation data, its relevance to the current policy outlook may be limited.
Thursday will see the release of S&P Global's preliminary Purchasing Managers' Index (PMI) data for August. A significant drop in the Services PMI (previously at 55.7) could weaken the USD. Conversely, a strong Manufacturing PMI (above 50) and a stable Services PMI could support the USD and hinder gold's gains.
Friday's Jackson Hole Symposium will feature a speech by Fed Chairman Jerome Powell. His remarks could significantly impact US Treasury yields and, consequently, gold's volatility.
Differing opinions among Fed officials regarding the policy outlook add to the uncertainty. Some advocate for multiple rate cuts, while others prefer a more cautious approach due to inflation concerns.
For instance, Fed Governor Michelle Bowman highlights weak labor market data as support for three rate cuts this year. Conversely, Kansas City Fed President Jeffrey Schmid suggests holding policy steady, citing the limited impact of tariffs on inflation.
If Powell downplays employment data and signals a cautious approach to further easing, expectations of three rate cuts could diminish, pushing Treasury yields higher and gold lower. Conversely, concerns about a weakening labor market could reinforce expectations of aggressive easing.
Gold Technical Analysis
The near-term technical outlook for gold is neutral. The Relative Strength Index (RSI) is around 50, and gold is fluctuating near the 20-day and 50-day Simple Moving Averages (SMAs).
A key pivot level appears to be forming at $3,355-$3,360 (20-day and 50-day SMAs). Failure to reclaim this level could attract technical sellers. In such a scenario, potential support areas include $3,305-$3,285 (100-day SMA, Fibonacci 23.6% retracement) and $3,200 (static level).
Conversely, if gold stabilizes above $3,355-$3,360, the next resistance levels could be at $3,400 (static level) and $3,430 (static level).