Bearish Correction In-Play
After hitting a top of $1821.90 and a low of $1785.20, the XAU/USD was finished at $1819.50. Gold prices jumped dramatically on Friday after remaining range-bound for several days. On Friday, gold hit a three-week high amid broad-based dollar weakening fueled by Federal Reserve Chairman Jerome Powell's recent address.
The US Dollar Index, which measures the dollar's value against a range of six major currencies, dropped dramatically to 92.63 on Friday, putting pressure on the greenback. On a 10-year Treasury note, the yield also fell on Friday, reaching as low as 1.3 percent after climbing over the previous three days.
The decline of the US dollar fueled a spike in gold prices on the final day of the week. At the Jackson Hole symposium, Federal Reserve Chairman Powell struggled to provide any hints on the timing for slowing asset purchases, putting the greenback under pressure. Powell stated that the US economy was on track but that the US was still susceptible to the coronavirus pandemic's threats.
The Fed chair stated that if the epidemic spreads further from the Delta variety, he will reconsider his previous position, which was that tapering could commence by the end of the year. He went on to say that while the substantial additional progress requirement for inflation has been met, and there has been demonstrable headway toward maximum employment, the Fed will be closely monitoring incoming data and emerging risks before deciding on tapering. Even if asset purchases stop, Powell believes that the increased holdings of longer-term securities will sustain accommodating financial conditions.
Since March 2020, the Federal Reserve has been buying around $80 billion in Treasury securities and $40 billion in agency mortgage-backed securities per month to help the US economy recover from pandemic-related economic devastation. Another action done by the central bank was to cut interest rates to near-zero and 0.25 percent, which is a new low.
The central bank's stimulus program has been blamed for escalating price pressures in the US, and investors believe the Fed will give indications about withdrawing stimulus backing at a Jackson Hole symposium. However, the Fed maintained its stance on tapering and gave no such signals, putting more pressure on the US currency and pushing yellow metal higher on the board.
On the data front, the Core PCE Price Index for July stayed unchanged at 17:30 GMT, despite predictions of a 0.3 percent increase. The July Goods Trade Balance showed a shortfall of -86.4 billion dollars, vs a forecast of -90.8 billion dollars, which bolstered the US dollar and capped further advances in gold prices. Personal income increased by 1.1 percent in July, compared to an anticipated 0.2 percent, bolstering the US dollar. In July, personal spending fell to 0.3 percent, compared to an anticipated 0.4 percent, weighing on the US dollar and adding to the yellow metal's gains.
The Prelim Wholesale Inventories fell to 0.6 percent in July, vs. a forecast of 1.0 percent, bolstering the US dollar and halting the yellow metal's upward trend. August's Revised UoM Consumer Sentiment fell to 70.3 from 70.9 expected at 19:00 GMT, weighing the US dollar and pushing precious metals higher. In August, the Revised UoM Inflation Expectations stayed unchanged from the previous month, at 4.6 percent.
GOLD Intraday Technical Level
Support Resistance
1820.21 1821.96
1819.38 1822.88
1818.46 1823.71
Pivot Point: 1821.13
GOLD - Technical Outlook
On Monday, gold was trading with a bullish bias at the 1,813 level. However, the metal entered the overbought zone and now it’s experiencing a bearish correction below 1,823 resistance levels. On the lower side, gold’s immediate support prevails at 1,807 and 1,795 levels. Furthermore, the bearish breakout of the 1,795 level exposes gold prices towards the 1,785 level.
On the higher side, the breakout of the 1,821 resistance level exposes the metal towards 1,829 and 1,841 levels. On the hourly timeframe, the RSI level is holding in a selling zone. Thus, the odds of a selling bias remain strong until the 1,807 level. The bullish bias remains strong above the 1,807 level and vice versa. All the best.
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