Gold price correction (XAU/USD) is currently trading at around $2,500, following a decline triggered by the US Dollar’s recovery. Since gold is primarily priced in USD, any upward movement in the dollar can negatively impact gold prices. As of Wednesday, the US Dollar Index (DXY) rose by nearly 0.5%, reaching just over 101.00 after rebounding from its year-to-date low of 100.51.
Recent US data showed a mixed economic outlook. On Tuesday, the Conference Board’s Consumer Confidence Index increased to 103.3, surpassing expectations of 100.7. This optimistic data suggests that the US economy might avoid a hard landing. However, labor market indicators weakened, raising concerns about a slowdown, as highlighted by Deutsche Bank strategist Jim Reid.
Gold Declines Amid Mixed Economic Signals
Gold price correction declined on Wednesday due to varying US economic data. The Richmond Fed Manufacturing Index dropped to -19 in August, compared to -17 previously, despite forecasts of an improvement to -14. Meanwhile, housing data was inconsistent, with house prices falling by 0.1% in June against a projected 0.2% increase, yet the S&P/Case-Schiller House Price Index reported a 6.5% year-over-year rise, surpassing the expected 6.0%.
On Monday, US Durable Goods Orders exceeded expectations, rising sharply by 9.9% in July, the highest since May 2020. This development reassured investors about the US economy’s resilience.
Interest Rate Expectations and Gold’s Future
Despite recent economic releases, market expectations regarding US interest rates have remained stable. According to the CME FedWatch Tool, there is still a mid-30% probability that the Federal Reserve will implement a significant 0.50% interest rate cut in September. This estimate hasn’t shifted much since Federal Reserve Chairman Jerome Powell signaled potential rate cuts during his speech at Jackson Hole.
As bond yields fluctuate, with 3-month US Treasury yields rising and long-term yields falling, traders are uncertain about the likelihood of a large rate cut. If such a cut were to occur, gold could benefit as it tends to rise when interest rates decline, being a non-interest-bearing asset.
Market participants are now awaiting the release of the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, on Friday, to gain further insights into future interest rate decisions. Additionally, Thursday’s second estimate of US GDP for Q2 could influence market expectations.
Long Positioning: A Challenge for Gold Bulls
According to Daniel Ghali, Senior Commodity Strategist at TD Securities, extreme long positioning in gold remains a challenge for those hoping to drive prices higher. Ghali notes that macro fund positioning in gold has reached levels comparable to those seen during the depths of the pandemic. He warns that this crowded positioning raises the potential for downside risks.
Technical Analysis: Gold’s Correction After Testing $2,530
Gold (XAU/USD) has retreated after testing the $2,530 level. Despite this correction, the metal remains within a broader consolidation pattern, staying above its previous range. Gold is still in a short-term uptrend, which generally favors bullish positions over bearish ones.
On the technical front, the breakout from the previous range, resembling an incomplete triangle pattern, occurred on August 14. This breakout generated an upside target of around $2,550, based on the 0.618 Fibonacci ratio. Achieving this target would confirm the continuation of the uptrend.
However, if gold were to close below $2,470 on a daily basis, it would negate the current bullish outlook and raise doubts about the short-term uptrend. Despite this, gold remains in a broad uptrend on both medium and long-term timeframes, supporting an overall positive outlook for the metal.
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