Gold Price Gains Momentum, Nearing Four-Week High Amidst USD Weakness
GOLD price is drawing buying interest for the fourth consecutive day, rising above the $1,945 level during the Asian session and approaching a four-week peak reached the prior day. The XAU/USD pairing now seeks to build upon its rebound from last week’s low around the $1,885 area, which was its lowest point since March 13.
The US Dollar (USD) is hovering near a two-week low, following disappointing US macro data released on Wednesday. This is a significant catalyst that is boosting the GOLD price. The recent data from Automatic Data Processing (ADP) indicated a modest addition of 177K jobs by the US private sector employers in August, a figure notably lower than the previous month’s revised reading of 324K and below the expected 195K. Furthermore, the second estimate revealed that the US economy expanded at an annualized rate of 2.1% in the second quarter, down from the initially reported 2.4% growth.
In the context of a decline in the Conference Board’s Consumer Confidence Index from 114.0 to 106.1 in August, market expectations of the Federal Reserve (Fed) potentially halting its rate-hiking cycle in September are being reinforced. This trend is exerting downward pressure on US Treasury bond yields, dampening the strength of the USD and benefiting Gold, which does not yield interest. Additionally, concerns over a deepening global economic downturn are providing extra support to the safe-haven status of the precious metal, though a positive risk sentiment may temporarily limit further gains.
Traders are likely adopting a cautious stance ahead of the release of the US PCE Price Index, the Fed’s favored inflation gauge, scheduled for the early North American session. The market continues to price in the potential for a 25 basis points (bps) increase by the US central bank in 2023. Consequently, this data will influence expectations about the Fed’s future rate path, thus impacting USD demand and providing fresh direction to the US Dollar-denominated Gold price. Unless there is a positive surprise in US inflation data, the overall backdrop indicates a bullish bias for XAU/USD.
Technical Outlook for Gold:
Gold’s price remains under the spotlight as the confirmation of a bullish chart formation, the four-month-old falling wedge, aligns with positive indications from the Moving Average Convergence and Divergence (MACD) indicator and the Relative Strength Index (RSI) at 14.
However, it’s important to note that the RSI is rapidly approaching overbought territory, suggesting limited upside potential for XAU/USD.
In this context, a horizontal area encompassing multiple levels identified since late May, approximately $1,984–85, and the yearly peak recorded in May around $2,067, could present a challenge for Gold buyers as they aim for the theoretical target of the wedge breakout, near $2,140.
Nonetheless, GOLD buyers might face hurdles unless the commodity remains above the bottom line of the mentioned wedge, situated around $1,883 at the time of writing.
To the downside, a GOLD price pullback is likely to be restrained as long as it stays above the 50-day Simple Moving Average (SMA) level of $1,930. Subsequently, the 200-SMA and the 61.8% Fibonacci retracement of the upside move from February to May, known as the Golden Fibonacci Ratio, will test XAU/USD sellers in the vicinity of $1,913 and $1,910 sequentially.
Overall, GOLD buyers’ optimism prevails as long as the commodity remains above the lower boundary of the mentioned wedge pattern, situated around $1,883 currently.
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