As the gold price continues to trade within a narrow range, several factors are influencing its movement. The XAU/USD pair is experiencing a modest uptick but lacks strong bullish momentum. This article explores the dynamics affecting gold’s performance, including the impact of a strengthening US Dollar, looming recession risks, US debt ceiling concerns, and the influence of Federal Reserve Chair Powell’s recent remarks.
Gold Price Struggles to Gain Momentum:
Despite a recovery attempt from the $1,950 level, which marked its lowest point since early April, the XAU/USD pair enters the new week on a subdued note. During the early European session, gold oscillates between minor gains and losses, currently trading around the $1,980 area, showing a slight upward trend for the second consecutive day.
US Dollar Strength Dampens Gold Price:
On Monday, the US Dollar (USD) attracts some dip-buying, pausing the retracement slide witnessed on Friday from a two-month high. This USD strength, combined with optimism surrounding potential improvements in US-China relations, acts as a headwind for gold priced in USD. US President Joe Biden’s comments during the G7 summit in Japan, expressing expectations of imminent progress in US-China relations, contribute to this sentiment. However, concerns about global economic growth slowdown and the unexpected breakdown in US debt ceiling negotiations overshadow this optimism.
US Debt Ceiling and Economic Worries Support XAU/USD:
Last week witnessed an abrupt halt in talks to raise the US government’s $31.4 trillion debt ceiling, raising doubts about reaching a resolution in the near future and heightening fears of a historic US debt default. Additionally, Federal Reserve Chair Jerome Powell’s less hawkish remarks provide a boost to the safe-haven appeal of gold. Powell, speaking at a Fed research conference, expressed uncertainty about the need for further interest rate hikes, considering the impact of past increases. These comments act as a headwind for the USD and support the non-yielding gold price.
Powell’s Remarks Limit Downside for Gold:
Powell emphasizes the central bank’s approach of making decisions on a meeting-by-meeting basis, indicating that officials will assess the evolving data and outlook before determining future rate hikes. This stance leads to a decline in US Treasury bond yields, restraining USD bulls from making aggressive bets and contributing to a limited downside for gold. However, cautious trading is advisable before anticipating further appreciation, as the lack of substantial buying activity suggests a need for further confirmation.
Upcoming US Macro Data and FOMC Meeting:
Monday does not present any major market-moving economic data releases in the US. Attention remains focused on a crucial meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Additionally, the performance of US bond yields will influence the USD dynamics and provide impetus to the gold price. Traders will also monitor the overall risk sentiment and look for short-term opportunities ahead of the release of flash US PMI prints on Tuesday and the Federal Open Market Committee (FOMC) meeting minutes on Wednesday.
Technical Outlook for Gold Price:
From a technical perspective, if the gold price sustains strength above the $1,984-$1,985 region, it has the potential to retest the psychological level of $2,000. Further buying activity would negate any short-term negative bias and allow the XAU/USD pair to advance towards the next significant resistance near the $2,011-$2,012 region. This range serves as a crucial juncture that, if decisively breached, could trigger a fresh wave of short-covering.
On the downside, the $1,950 level has emerged as robust support, offering immediate protection against further declines. However, if selling pressure intensifies, the 100-day Simple Moving Average (SMA) at the $1,930 zone becomes the next target. Breaching this level could accelerate the decline, potentially testing the significant round-figure support at $1,900.