Gold, XAU/USD – price action:
- XAU/American dollar He’s mainly been on the sidelines in recent weeks.
- However, the evolution of price action increases the risk of a move down.
- What are the key forecasts and levels to watch in XAU/USD?
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Gold fell slightly after the hawkish comments from US Federal Reserve Chairman Jerome Powell, and started to look vulnerable to a break below the key support level.
Gold remained largely stable above a key support level – Previous update highlighted that gold may not be ready to breakout below support – see “Gold Price Setup: Could Long Positions in XAU/USD Be Extended for Trump Technicals?” Posted on the 8th of June. However, Powell’s testimony before the House Financial Services Committee may have just lowered the yellow metal’s bar for further softening.
XAU/USD 240 minute chart
Chart by Manish Gradi using TradingView
Powell maintained the hawkish stance, saying further rate hikes are a “very good guess” and that a June pause does not mean a pause in the hiking cycle while he reiterates expectations for two more rate hikes before the end of the year.
Meanwhile, Atlanta Fed President Raphael Bostic said the Fed will need to wait at least after its meeting in July to decide on an interest rate hike. While Bostick’s comments were somewhat dovish, it likely has implications for the trajectory, not the trajectory of higher prices, which keeps the yellow metal under pressure.
XAU/USD daily chart
Chart by Manish Gradi using TradingView
The reversal in the slope of the 89 period and 200 period moving averages on the 240 minute charts from top to bottom speaks to the developing trend although XAU/USD has barely moved in recent weeks. The yellow metal failed to cross above the two moving averages, and the lower lows increase the odds of a move lower in the short term.
XAU/USD weekly chart
Chart by Manish Gradi using TradingView
On the daily chart, gold is holding so far above a quite strong cushion around 1930, including the end of May low, the 89-day moving average, and the lower edge of the Ichimoku cloud. Any break below 1930 could open the door towards the 200-day moving average (now at around 1850). On the upside, gold would need to rise above the 1970-1985 period for the immediate downward pressure to reverse.
It appears that a large part of the current weakness is an indirect effect of what is happening on the charts with higher timeframes, as shown in recent months. See “Gold Could Find Difficulty Breaking $2000,” posted on March 28, and “Weekly Gold Outlook: Time to Be Cautious on XAU/USD?” Posted on April 16. Subsequent updates can be found here: April 24th, May 10th, May 17th, and May 31st.
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– Posted by Manish Grady, Strategist for DailyFX.com
Connect with Jaradi and follow her on Twitter: @JaradiManish