Gold prices experienced a correction in early trading as profit-taking activities affected the market. Despite this dip, the overall sentiment remains bullish as traders anticipate upcoming economic data from the United States. Specifically, investors are focused on the implications of the US Gross Domestic Product (GDP) figures and signals from the Federal Reserve regarding potential interest rate adjustments.
A range of factors influences the current outlook for gold prices. Key among these is the possibility of a US interest rate cut, which was suggested by Federal Reserve Chairman Jerome Powell. In addition, Donald Trump has recently implemented a 50% tariff on goods from India, adding to market volatility. Furthermore, Trump’s dismissal of Fed Governor Lisa Cook underscores his pressure on the Federal Reserve to reduce borrowing costs.
Federal Reserve Insights and Economic Conditions
At the recent Jackson Hole Symposium, Powell highlighted that a slowdown in the labor market may necessitate a decrease in interest rates. He pointed to weaker data from the July nonfarm payroll report as supportive of such a move. Although he acknowledged the current impact of tariffs, he indicated that these effects might be temporary. Nevertheless, the growing risk of job losses has raised concerns about layoffs and a potential increase in unemployment.
According to the CME FedWatch tool, there is an 87% probability of a 25 basis point rate cut in the Federal Reserve’s upcoming policy meeting next month. Such a decision could significantly bolster gold prices, providing the metal with strong bullish momentum.
Impact of Trade Policies and Currency Movements
The newly implemented 50% tariffs on goods from India took effect on August 28, 2023. In a related decision, the Swiss Post announced a temporary halt on sending goods to the United States, following Trump’s removal of a tariff exemption for “de minimis” packages valued at $800 or less. This change, effective by August 29, adds uncertainty to the market and could exert additional pressure on both the US economy and the value of the US Dollar.
During early European trading, the US Dollar experienced a slight rebound, leading to some profit-taking in gold and briefly pushing prices into negative territory. The Dollar index traded 0.12% lower, hovering near 98.00, as investors anticipated upcoming US economic data that could further influence market dynamics.
Upcoming releases include the annualized Q2 Gross Domestic Product on August 28 and the Personal Consumption Expenditure Price Index scheduled for August 29. These data points are crucial as they may guide the Federal Reserve’s decisions on interest rates. Current market conditions suggest that caution prevails, with risk aversion leading to a flow of liquidity toward safe-haven assets like gold and silver.
Gold prices are currently trading within an ascending channel on the 1-hour time frame, reflecting a bullish trend. As of now, gold is priced near the psychological level of $3,400 and has consistently held above the $3,380 mark for three consecutive days. This stability indicates strong buyer control and upward momentum, having recently broken key resistance levels at $3,386 and $3,393, which now serve as short-term support for XAUUSD.
Analysing the daily chart, the price action reinforces a solid bullish trend, with the MACD indicator signaling continued upward movement. Since the beginning of the year, gold has maintained a position above the 200, 100, and 50-day moving averages. A decisive break above $3,410 could lead to a rally toward $3,439, a high last seen on July 23. Further upward movement could target the psychological level of $3,500, which was last reached on April 22.
As for the gold price outlook, analysts project continued increases through 2025, driven by a dovish Federal Reserve, Trump’s tariffs, signs of a weakening US economy, and ongoing geopolitical tensions. For long-term investors, now may be an advantageous time to acquire gold, as anticipated interest rate cuts are likely to redirect liquidity toward safe-haven assets like gold.
