Key points:
Gold prices (Symbol: XAUUSD) edged higher, continuing their upward trajectory from the previous session. This rise was largely fueled by dovish remarks from Federal Reserve Chair Jerome Powell, who indicated support for a potential rate cut in September.
Picture: XAUUSD prices rise as Fed signals September rate cut, as observed on the VT Markets app.
What do market participants make of Powell’s remarks? Turning our eyes to the charts, the XAU/USD (gold) chart shows a strong upward trend, with the price closing at $2,523.57, reflecting a 0.43% gain. Lower interest rates typically reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors.
The chart demonstrates that gold is currently trading well above its key Exponential Moving Averages (EMAs), particularly the 72-period EMA, which is supporting the bullish momentum. The MACD indicator further confirms this positive outlook, with the MACD line above the signal line and the histogram showing increasing positive momentum. This suggests that the upward trend in gold prices could continue as long as the market remains optimistic about potential rate cuts.
Investors should monitor the resistance level around $2,525.18, the recent high on the chart, as a break above this level could signal further upside potential.
Conversely, any signs of a shift in the Federal Reserve’s stance or stronger-than-expected U.S. economic data could introduce volatility, potentially leading to a pullback in gold prices. Support levels to watch include the $2,510 area, where the price may find support if it retraces.
The U.S. dollar index (Symbol: USDX) remained near its lowest level in eight months, which further supported the rise in gold prices. Lower interest rates and a weaker dollar generally make gold more attractive as an investment, especially for holders of other currencies.
Powell’s remarks, delivered last Friday, emphasised that the time has come for the Federal Reserve to consider easing monetary policy. He pointed out the rising risks to the labour market, even as inflation appears to be moving toward the Fed’s 2% target. This has led traders to fully price in a rate cut next month, with a 64% probability of a 25-basis-point cut and a 36% chance of a more substantial 50-basis-point reduction.
Adding to the bullish sentiment for gold, geopolitical tensions in the Middle East have intensified. Over the weekend, Hezbollah launched rockets and drones at Israel, prompting a strong military response from Israel.
Such geopolitical uncertainties often drive investors toward safe-haven assets like gold, as they seek to mitigate risks.
Related content: How to trade gold?
On the physical demand front, however, the rally in gold prices has dampened its appeal in major Asian markets.
Dealers in these regions have been offering deeper discounts in an attempt to attract buyers, indicating that higher prices may be stifling demand in the short term.
With the Federal Reserve likely to cut rates, gold could continue its upward trend. However, traders should be cautious of potential profit-taking or fluctuations driven by geopolitical developments and physical demand dynamics, which may affect your news trading strategy.
Monitoring key economic indicators and Fed communications will be key to making informed trading decisions in this volatile environment.
