Gold Price Faces Pressure at $2,500 as US Dollar Strengthens, Downside Risk Remains

Gold (XAU/USD) has been unable to shake off its bearish trend, continuing to hover around the $2,501.57 level after reaching an intraday low of $2,499.44.

The primary driver behind this decline is the renewed strength of the US dollar, which has rebounded after a four-day losing streak. The recent rally in global financial markets has also reduced gold’s allure as a safe-haven asset, adding to the downward pressure on its price.

#XAUUSD #Gold price reached a new record high of $2,500, driven by a weaker US dollar and geopolitical tensions The 14-day RSI is at 66, indicating more gains are possible

Key Levels to Watch

R: $2,510, $2,523, $2,535 ¹
S: $2,496, $2,485, $2,427 ¹ pic.twitter.com/NhaYLIZN1s

— Forex Gold Trader (@fxgoldanalysis) August 21, 2024

However, expectations of a dovish Federal Reserve (Fed) stance may limit the dollar’s gains and help gold avoid deeper losses.

Geopolitical Tensions and Economic Data Add Complexity to Gold’s Outlook

The ongoing geopolitical tension between Israel and Hamas continues to create uncertainty, which could support gold prices by limiting their downside.

The delayed truce talks between the two sides have raised concerns about the potential for a broader Middle Eastern conflict, which has dampened market optimism. Investors typically flock to gold during periods of geopolitical uncertainty, seeking it as a safe-haven asset.

Mkt trend gold futures: Kadar faedah Fed Reserve & geopolitical uncertainty key drivers. CB buying terus sokong harga. USD strength & real yields jg penting. Supply/demand dynamics evolving. Inflation & econ conditions shape sentiment. JPM forecast: $2,500/oz by Q4 '24. Stay…

— Tengkolok (@Tengkolok24) August 16, 2024

Meanwhile, traders are closely monitoring upcoming US economic data, including Weekly Initial Jobless Claims and Existing Home Sales, as potential catalysts for short-term trading opportunities in gold.

Fed Rate Cut Speculation Offers a Potential Lifeline for Gold Prices

On the US front, the broad-based US dollar has gained positive momentum, snapping a four-day losing streak.

However, the possibility of the Federal Reserve adopting a more dovish stance could limit the dollar’s recovery and provide some support for gold prices. Recent data from the US Bureau of Labor Statistics revealed that job growth over the past year was weaker than initially estimated, with 818,000 fewer jobs added than previously thought.

This weaker-than-expected job growth has fueled speculation that the Fed may begin cutting interest rates as early as September, which would benefit gold, a non-yielding asset.

#Gold futures added to their previous recent highs on Monday, driven by a weakening dollar and growing speculation about potential Federal Reserve rate cuts.

— Ric Bender (@ricbender) August 20, 2024

The minutes from the July 30-31 FOMC meeting further reinforced this sentiment, showing that most Fed officials supported a rate cut in September, with some even favouring immediate action.

As a result, market expectations for a 50 basis points rate cut next month have risen to 38%, up from 29% the previous day.

These developments have helped stabilize gold prices above the $2,500 level by reinforcing expectations of a potential Federal Reserve rate cut, which could weaken the US dollar and make gold more attractive as a safe-haven asset.

Technical Analysis: Key Levels to Watch for Gold

On the 4-hour chart, gold maintains its bullish momentum within an upward channel, with a key pivot point at $2,508. Immediate resistance levels are seen at $2,532, $2,555, and $2,580.

On the downside, support lies at $2,490, $2,470, and $2,452. The 50-day Exponential Moving Average (EMA) at $2,482 continues to provide additional support, reinforcing the bullish trend.

The Relative Strength Index (RSI) is around 60, indicating moderately strong bullish sentiment, though not yet overbought.

As long as gold stays above the critical $2,500 level, the upward channel suggests potential for further gains. However, a break below this psychological level could trigger a bearish correction, potentially testing lower support levels.

Conclusion:

Gold remains bullish as long as it stays above $2,500, but a dip below this level could signal a downward correction.

Investors should watch closely for any developments in the Fed’s monetary policy and geopolitical tensions, as these factors will likely influence gold’s trajectory in the coming weeks.