Gold (XAU) Daily Forecast: Bearish Momentum in Gold Eyes Key $2,488 Support Level

Market Overview

Gold prices (XAU/USD) kicked off the week with a downward trend, slipping to around $2,498. This drop is primarily attributed to a stronger US dollar, which saw a surge as traders reduced expectations for aggressive interest rate cuts by the Federal Reserve.

The shift followed the release of the US July Personal Consumption Expenditures (PCE) Index, signalling a tempered approach to policy easing.

US Dollar’s Impact on Gold Prices Amid Fed Rate Cut Speculations

The US dollar gained significant ground, reaching a two-week high against the euro. This was fueled by market adjustments in anticipation of a more cautious Federal Reserve. Current market sentiment reflects a 70% probability of a 25 basis points (bps) rate cut in September, with only a 30% chance of a larger 50 bps reduction.

Additionally, the dollar strengthened against the yen, bolstered by rising long-term Treasury yields, which hit their highest levels since mid-August.

The PCE Price Index for July showed a 2.5% year-on-year increase, consistent with the previous month but slightly below expectations of 2.6%. The core PCE, excluding food and energy prices, rose by 2.6% year-on-year, also missing the expected 2.7% increase.

Despite these figures, the likelihood of an interest rate cut by the Fed in September may help cushion gold’s decline, as lower rates reduce the opportunity cost of holding non-yielding assets like gold.

China’s Economic Slowdown Adds Pressure

The ongoing slowdown in China’s economy, the world’s largest gold consumer, further presses gold. The Chinese Manufacturing Purchasing Managers’ Index (PMI) fell to 49.1 in August, indicating a contraction in the sector.

This economic weakness in China continues to diminish gold’s appeal, contributing to its recent price declines.

In summary, the stronger US dollar and reduced expectations for aggressive Fed rate cuts exert downward pressure on gold prices. However, the potential for a rate cut in September could help limit further losses by lowering the opportunity cost of holding gold.

Short-Term Forecast

Gold prices remain under pressure, hovering near $2,498. A break above $2,505 could signal a bullish reversal, but failure to do so may drive prices toward key support at $2,488.

Gold Prices Forecast: Technical Analysis

Gold (XAU/USD) is trading at $2,498.52, reflecting a slight decline of 0.30%. The price action is confined between immediate support at $2,489.95 and a critical pivot point at $2,504.95.

If Gold manages to break above this pivot, it could potentially target the next resistance levels at $2,515.26 and $2,529.03, suggesting a bullish shift. However, a failure to surpass $2,505 could reinforce the bearish momentum, driving the price towards the 200-day EMA at $2,487.57, a key support level.

Traders should monitor this zone closely, as a bounce from $2,487 could trigger a short-term rally, while a break below could lead to a deeper sell-off.