After rebounding from cluster support at $1,690/$1,675 earlier in the month, gold prices (XAU/USD) have sped up their recovery recently, climbing sharply in the previous ten sessions. The precious metal has gained more than 3 percent this week alone to trade at over $1,780 per troy ounce, helped by a falling dollar but primarily by falling bond rates in response to the Fed’s most recent decision and advice.
Treasury yields sharply declined following the July FOMC meeting, with the 2-year yield reaching its lowest level in almost a month (2.84 percent), as statements made by Chair Powell were interpreted as an indication that the peak of the Fed’s hawkishness has passed. For perspective, the head of the central bank stated during a press conference that another unusually significant hike would rely on data, implying that future policymakers may decide to slow the tightening cycle’s pace.
Despite reaching four-decade highs, the observed CPI is expected to begin to decline in the next months due to dropping commodity prices, notably those in the energy sector, including those for oil and gasoline. This could lessen the need to keep removing accommodations forcibly, especially given the dramatic decrease in market-based indicators of projected inflation. Less upcoming hikes may increase the upside for XAU/USD.
The slowdown in American corporate activity is another factor that could help gold prices rise much higher. For the second straight quarter, the United States’ gross domestic product shrank, raising the possibility of a hard landing.
By some measures, the economy is on the verge of a recession, therefore Federal Reserve officials might adopt a more dovish approach later this year. Incoming economic data that is softening may cause traders to begin preparing for this possibility, enhancing the yellow metal’s appeal in the short run.
ISM manufacturing, ISM services, and labor market data are just a few of the high-impact occasions on the calendar for the coming week that are worth keeping an eye on. All of these reports are most likely to demonstrate a further slowing of economic growth, which could increase the likelihood of a downturn. Gold might flourish in this setting.
Gold prices have dropped sharply from their early-March 2022 highs, but they have recently started to rise after failing to break below a crucial technical floor in the $1,675–$1,690 region, where the 38.2 percent retracement of the 2015–2020 rally aligns with long-term trendline support and several 2021 lows.
Initial resistance is seen at $1,785, followed by $1,835, if the bulls maintain control of the market in the ensuing days. The attention shifts upward to $1,880 on continued strength. On the other hand, if sellers return and cause a bearish reversal, $1,690/$1,675 would be the first support to take into account. This region might advance toward $1,615 if it were to be breached.