- Gold price consolidates its recent move up to the highest level since May 24.
- Subdued US Dollar price action continues to lend support to the commodity.
- Bets for a shift in the Federal Reserve's hawkish stance favour bullish traders.
Gold price oscillates in a narrow trading band through the Asian session on Wednesday and consolidates the previous day's strong move up to the $1,984 area, or a nearly eighth-week high. The XAU/USD currently trades just below the $1,980 level and seems poised to prolong its recent steady ascent witnessed over the past three weeks or so.
Bearish US Dollar should lend support to Gold price
The US Dollar (USD) struggles to register any meaningful recovery from its lowest level since April 2022 touched on Tuesday in the wake of growing acceptance that the Federal Reserve (Fed) will soften its hawkish stance. This, in turn, should continue to act as a tailwind for the Gold price. Firming expectations that the Fed will back off after the widely anticipated 25 basis points (bps) rate-hike at its upcoming policy meeting on July 25-26 turn out to be a key factor undermining the Greenback.
Bets for less hawkish Federal Reserve could also benefit XAU/USD
Expectations that the Fed may be close to reaching the end of its current policy-tightening cycle were lifted by the latest CPI report from the United States (US), which pointed to a further moderation in consumer prices. Furthermore, data released on Tuesday showed that the headline US Retail Sales rose less than expected in June and Industrial Production surprisingly fell in June. This, in turn, suggested that the Fed is making some progress to temper inflation by slowing economic growth and demand.
Downside for Gold price seems limited
However, core US Retail Sales – excluding automobiles, gasoline, building materials and food services – showed more resilience. This, in turn, raises doubts if the Fed will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike this year, which is holding back traders from placing fresh bearish bets around the USD and capping gains for the Gold price. The downside, meanwhile, seems cushioned amid expectations that other major central banks could signal a win against inflation.
The European Central Bank (ECB) official Klaas Knot told Bloomberg TV on Tuesday that rates will rise this month but anything beyond July is by no means a certainty. Separately, ECB Governing Council member Ignazio Visco noted that inflation may drop more quickly than forecast. Adding to this, some analysts argue that the ECB might revise its inflation forecast in September. Moreover, inflation in Canada dropped to within the Bank of Canada's (BoC) control range for the first time since March 2021.
This, in turn, led to the overnight decline in the global bond yields, which could further benefit the non-yielding Gold price and validates the near-term positive outlook. Apart from this, worries about a global economic downturn, further fueled by this week's disappointing Chinese macro data, suggests that the path of least resistance for the XAU/USD remains to the upside and any meaningful corrective decline might still be seen as a buying opportunity.
Gold price technical outlook
From a technical perspective, the overnight sustained strength beyond the $1,972-$1,973 horizontal resistance adds credence to the recent breakout through the 100-day Simple Moving Average (SMA). This, along with positive oscillators on the daily chart, supports prospects for a further near-term appreciating move towards reclaiming the $2,000 psychological mark. The upward trajectory could get extended further towards testing the next relevant hurdle near the $2,010-$2,012 supply zone.
On the flip side, the $1,973-$1,972 area now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged around the $1,958 region. This is followed by the weekly swing low, around the $1,946-$1,945 zone, below which the Gold price could accelerate the fall towards the $1,934 horizontal support. Any subsequent fall, however, is more likely to get bought into and remain limited near the $1,926-$1,925 region.
Key levels to watch