GOLD Analysis
Afternoon: Gold Retreats Amid Dollar Strength, Fed Rate Cut Hopes Persist
Highlights:
- Gold fell to $2,420 as the dollar rallied on strong US economic data, while Fed rate cut forecasts remained unchanged.
- The dollar's strength was bolstered by robust manufacturing growth and seasonal factors affecting unemployment claims.
- Despite the decline, gold is set for its fourth consecutive weekly rise due to increased Fed rate cut expectations.
Market Outlook
Gold fell to $2,420, retreating from record highs as the dollar rallied on strong US economic data. The dollar's strength was bolstered by better-than-expected manufacturing growth in the US Mid-Atlantic area for July, which offset the rise in weekly unemployment claims attributed to seasonal factors. This robust manufacturing data has provided support to the dollar, pressuring gold prices. However, the precious metal remains on track for its fourth straight weekly rise, driven by heightened expectations that the Federal Reserve will reduce interest rates as early as September. According to CME's FedWatch Tool, markets currently predict a 98% chance that the Fed will cut interest rates at its September meeting.
Federal Reserve officials have recently reinforced this outlook. Fed Chair Jerome Powell and other members have expressed growing confidence that inflation is on a path towards the central bank's 2% target, suggesting that rate cuts could be on the horizon. This sentiment has continued to support gold prices despite the recent pullback.
Key Economic Data Releases
- German PPI (m/m): An indicator of inflation at the producer level in Germany, which can influence the euro and, consequently, gold prices.
- Current Account from Euro Zone: Reflects the balance of trade, investment income, and transfer payments in the Euro Zone, impacting the euro and gold prices.
- FOMC Member Speaks from US Zone: Comments from Federal Reserve members can provide insights into the central bank's monetary policy outlook, impacting the dollar and gold.
Technical Analysis
Gold prices have encountered resistance near $2,450, a level that has proven challenging to break. The recent pullback to $2,420 indicates profit-taking and the dollar's strength influencing the market. However, the underlying bullish trend remains intact, supported by the anticipation of rate cuts. The support level at $2,400 is crucial; if prices hold above this level, a rebound towards $2,450 and beyond is likely.
In the MCX market, gold prices have shown similar patterns, with support at ₹73,650 and resistance at ₹74,500. The technical indicators suggest a consolidation phase, with a potential upward movement if the support levels hold firm.
Action Plan
Traders are advised to sell on a jump around $2,432, targeting $2,410, and implement a stop loss above $2,446. This strategy takes advantage of the expected short-term volatility and the potential for a pullback before a possible rebound.
Support and Resistance Levels:
