XAUUSD – The precious metal, gold, continued with its bearish trend into the new week. The bears seemed to have feasted on gold last week, with the price losing over 580 pips, falling from $1801 at the beginning of the previous week to $1745.
The bulls tried to defend this support level during the Asian session today, but the bears appeared stronger, pushing the price even lower down during the European session today.
Analysts believe that the rising fears of a more aggressive interest rate hike by the Fed during their next September meeting are keeping investors away from gold.
The bulls are struggling to defend the current support level with the price fluctuating around it and pushing lower to $1742 during the European session today. However, the buying volume has diminished significantly, giving room for possible further downside ahead of the Jackson Hole Symposium on Thursday.
The strong dollar index has significantly hindered gold prices so far. With the dollar index remaining above 108.15 up to the European session, it makes it harder for gold to reclaim its bullish momentum at the intraday level.
Economists admit that investors are awaiting the outcome of the Jackson Hole Symposium this week to determine the next long-term trend for gold. The Fed’s monetary policy during this session will determine whether gold prices will recover or continue with their downward trend. A more aggressive monetary policy could lead to more selloffs for gold, while a reduction in the aggressive interest rate hike will likely support gold’s gradual recovery.
Expectations of a slowdown in interest rate hikes, given the lower inflation rate in the most recent US CPI report for July, and bolstered by fears of a possible recession, are gradually giving investors new reasons to repurchase gold.
Added to this, the decision to cut the interest rate by the People’s Bank of China (PBOC) has raised new interest in gold among investors, especially from the Asian zones, hoping other countries will emulate the same too. The PBOC lowered its five-year loan prime rate on Monday to 4.30% from the previous 4.45%. The committee also reduced its one-year loan prime rate to 3.65%, down from the previous record of 3.70%. This comes after previously reducing its one-year medium-term lending facility (MLF) loan rate to most financial institutions by 10 basis points.
The recent decision to lower its interest rate is based on the need to restore more credit demand and push up economic growth hitherto slowed down by extended COVID-19 lockdowns and high debt accumulations.
Judging by the recent decision by the PBOC, many analysts believe that other central banks might see the need to toe the same path and slow down on their interest rate hikes, which could trigger a rebound for gold ahead of the Jackson Hole Symposium this week.
Notwithstanding, the price needs to reclaim the current support level at $1745 to attract more bulls. Failure to sustain above the current level could lead to further downside and possibly a retest of the previous month’s low at $1682.
Gold price forecast
Gold is currently below its support level at $1745 and we are hoping for a bounce back from this level. If gold fails to recover from its current support level, it may fall further, with the next target at $1725. A break below this level could lead to the previous month’s low at $1682.
The only hope for a rebound for gold prices is a decline in the dollar index, which is currently facing strong resistance at 108.2.
Above all, while investors look up to the decisions of the Fed during the Jackson Hole Symposium to determine the next direction to follow, it is equally important to watch out for the outcome of the US prelim GDP q/q to be released on Thursday as well, as these factors put together will exert significant pressure on gold prices this week.
