Gold prices are taking a brief pause, retreating slightly to the $3,470 mark per ounce, following a strong start to the week. Despite this pullback, the precious metal continues to enjoy a robust upward trajectory, supported by expectations of interest rate cuts by the US Federal Reserve in the second half of the year. The ongoing weakness of the US Dollar also continues to aid gold’s bullish momentum.
Technical Overview: Gold’s Breakout and Short-Term Consolidation
From a technical standpoint, gold made a significant move on Friday, breaking through the $3,440 resistance zone, which had previously capped the price action for over three months. This breakout was seen as a strong signal for gold’s bulls, further confirmed by positive momentum from the daily chart oscillators.
However, the daily Relative Strength Index (RSI) is nearing the overbought territory, suggesting that gold may face a short-term pause or consolidation near the key $3,500 psychological level—its highest peak reached in April. A brief retreat in prices could be expected before any further breakout.
On the downside, a corrective pullback could find solid support near the recently broken $3,440 resistance zone, which now acts as a strong floor. If prices slip further, the $3,400 round figure would likely provide another base. Should gold dip below this level, a deeper pullback toward $3,372 or $3,350 could occur, especially if further technical selling pressure materializes.
Fundamental Overview: Fed Expectations and Geopolitical Tensions
Gold’s continued strength is largely driven by the market’s growing expectations of rate cuts from the US Federal Reserve. Last week, the US Bureau of Economic Analysis reported that the core Personal Consumption Expenditures (PCE) Price Index rose by 2.9% in July, meeting market expectations. This reinforced the belief that the Fed could reduce interest rates as early as this month, further reducing the opportunity cost of holding non-yielding assets like gold.
According to the CME FedWatch Tool, traders are now pricing in an 87% probability of a 25 basis point rate cut at the Fed’s upcoming September meeting. There’s also an expectation that the central bank could implement at least two rate cuts by the end of 2025.
However, geopolitical risks are also adding fuel to gold’s rally. The ongoing political turmoil surrounding the Federal Reserve’s autonomy, particularly after US President Trump’s move to dismiss Fed Governor Lisa Cook, has raised concerns about the central bank’s independence. This has further contributed to gold’s safe-haven appeal, as investors turn to the precious metal amidst uncertainty about the Fed’s future direction.
On the geopolitical front, tensions between Russia and Ukraine continue to escalate, with deadly strikes on Ukrainian cities and missile attacks, further raising concerns in global markets. Additionally, the Israeli-Palestinian conflict remains tense, adding further uncertainty and boosting demand for safe-haven assets like gold.
What’s Next for Gold?
Gold has shown resilience despite global economic and political challenges. The bullish trend remains intact, with the $3,440 area offering strong support. A decisive move above $3,500 could see gold targeting new all-time highs, potentially pushing toward $3,578 and beyond.
However, in the short term, investors should expect potential pullbacks or consolidations as the RSI enters overbought levels. Any price retracements to $3,400 or lower could provide buying opportunities, especially given the continued support from expectations of a dovish Fed and ongoing geopolitical risks.
As the market looks ahead to crucial US economic data, including the Non-Farm Payrolls (NFP) report on Friday, the direction of gold could be influenced by how the data aligns with Fed policy expectations. Strong job growth or elevated inflation could support the US Dollar and limit gold’s upside, while weaker data could add further fuel to the gold rally.
Conclusion: Gold’s Bullish Bias Remains Intact
Gold continues to be a key beneficiary of a dovish Fed outlook, weakening US Dollar, and rising geopolitical risks. While there may be short-term pullbacks, the overall trend remains bullish, with further upside likely, particularly if the market continues to price in Fed rate cuts and geopolitical uncertainties persist. Investors should keep an eye on the $3,500 resistance level, with a breakout above it potentially triggering a fresh surge toward new all-time highs.
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