Gold prices experienced a retreat during Thursday’s Asian session, pulling back from a three-week high near $3,400, as the US Dollar (USD) gained momentum and traders took profits. Despite this pullback, concerns regarding the US Federal Reserve’s (Fed) independence and upcoming economic data might limit further downside in the yellow metal.
Gold Price Faces Resistance as US Dollar Rebounds
Gold (XAU/USD) began the day on a weaker note, sliding into negative territory as the US Dollar rebounded. The metal’s retreat came after a significant rally that pushed gold to its highest point in three weeks, but profit-taking pressures and a stronger dollar capped its potential. Additionally, ongoing political turmoil regarding US President Donald Trump’s attempt to remove Fed Governor Lisa Cook over allegations of mortgage fraud has contributed to gold’s resilience. As a traditional safe-haven asset, gold tends to benefit from such uncertainty in financial markets.
Impact of Fed’s Independence Concerns on Gold
Concerns surrounding the independence of the Federal Reserve continue to affect investor sentiment. President Trump’s move to remove Fed Governor Lisa Cook has raised alarm about political interference in central bank operations, prompting safe-haven demand for gold. Cook’s response, stating that she would not resign and intends to challenge her ouster through legal means, has further intensified these concerns. Gold traders are viewing this uncertainty as a reason to maintain positions in the precious metal, given its role as a hedge against instability.
Key Economic Data Ahead: US GDP and PCE Inflation Report
Looking ahead, the market is now focusing on key economic data releases. The second estimate of the US Gross Domestic Product (GDP) for the second quarter (Q2) will be released later on Thursday. Economists expect the US economy to have grown at an annual rate of 3.1% in Q2. A better-than-expected GDP reading could further bolster the US Dollar, weighing on gold prices, which are denominated in dollars. Conversely, a weaker-than-expected GDP number may fuel gold’s rally as concerns over economic slowdown could prompt further interest rate cuts by the Fed.
On Friday, the attention will shift to the US Personal Consumption Expenditures (PCE) inflation data, which is closely watched by the Fed as a key inflation gauge. A higher-than-expected PCE reading could hinder the Fed’s ability to cut rates in September, while a weaker inflation report would likely reinforce expectations for rate cuts, potentially providing further support to gold prices.
Market Movers: Gold’s Slump Amid US Dollar Strength
The recent gold price slump is largely attributed to the rebound in the US Dollar, driven by Fed Chair Jerome Powell’s comments on the potential for a rate cut. While Powell emphasized the risks to the job market and inflation concerns, the strong US economic data has kept the market guessing on the timing and scale of any future rate cuts.
In addition, Trump’s ongoing efforts to exert control over the Fed’s policy direction by firing Governor Cook have added uncertainty to the market. Cook’s dismissal has reignited concerns over the independence of the central bank, which could potentially lead to more volatility in the financial markets. However, Trump’s confrontation with Cook has also triggered safe-haven demand for gold as investors react to the unpredictability surrounding the Fed’s future policy moves.
Gold’s Technical Outlook: Holding Above Key Support Levels
Despite the recent pullback, gold’s longer-term bullish outlook remains intact. The price continues to hold above the crucial 100-day Exponential Moving Average (EMA) on the daily chart, indicating that the metal’s uptrend is still in play. Additionally, the 14-day Relative Strength Index (RSI) is above the midline, suggesting that the momentum remains favorable for gold in the near term.
The immediate resistance level for gold lies near $3,410, which is the upper boundary of the Bollinger Band. A breakout above this level could pave the way for a move towards $3,439, the high reached on July 23. Beyond that, the next major resistance target is at $3,500, which is both a psychological level and the high from April 22.
On the downside, the key support levels for gold are at $3,351, which is the low of August 26, and $3,313, the lower limit of the Bollinger Band. If the price breaks below these levels, further declines could be expected, potentially reaching the next support at $3,275, which corresponds to the 100-day EMA.
Conclusion: Gold’s Outlook Amid Political and Economic Turmoil
Gold prices are currently consolidating after reaching a three-week high, with short-term pullbacks driven by profit-taking and a stronger US Dollar. However, the ongoing concerns over the independence of the Federal Reserve and the political turmoil surrounding President Trump’s attempts to influence the Fed are likely to continue supporting gold as a safe-haven asset.
Traders are now looking to key economic data releases, particularly the US GDP and PCE inflation report, for further clues on the Fed’s policy trajectory. While gold faces near-term resistance, its longer-term bullish trend remains intact, especially if the market continues to price in rate cuts. Gold’s ability to hold above key support levels will be crucial in determining its next move.
As we await the release of critical economic data later this week, gold’s safe-haven demand, driven by both political and economic factors, continues to offer support. Any potential weakness in the US Dollar, combined with further signs of economic slowdown, could keep gold on its bullish trajectory.
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