Gold Price Forecast: XAU Rises Ahead of US CPI Report Amid Banking Jitters

Highlights

• Gold (XAU) rebounds from month-long low.
• Moody’s bank rating cut influences price action. 
• Interest rates’ future remains uncertain.

Overview

Gold (XAU) prices are experiencing a slight uptick on Wednesday, lingering within the broad range established last Friday. As the trading world keenly awaits the U.S. Consumer Price Index (CPI) report due tomorrow, the precious metal finds itself in the spotlight.

At 05:00 GMT, Spot Gold is trading at $1930.44, marking an increase of $5.335 or 0.28%. This upswing follows a slump to a month-long low of $1,922 on Tuesday. Concurrently, U.S. gold futures are echoing a similar upward trend.

Gold Reacts to Dollar, Bank Downgrades

Several economic indicators and statements have been influencing the gold market. Notably, the dollar index has retreated from its peak in the last session, and longer-dated U.S. Treasury yields dipped after Moody’s took the unexpected step of slashing credit ratings for multiple small to mid-sized American banks. This downgrade also rippled through the banking sector, with both U.S. and European bank stocks experiencing a fall. Furthermore, Italy’s sudden decision to impose a 40% windfall tax on its lenders added to the sector’s apprehension.

Trade Deficit Narrows: Imports at 18-month Low

On the U.S. trade front, there’s positive news as the trade deficit saw a considerable contraction in June. This reduction was primarily driven by businesses curbing their foreign capital goods purchases, leading to the lowest import levels in over a year and a half.

Fed Members Discuss Rate Hike Possibilities

Meanwhile, in the world of interest rates, there’s a buzz of anticipation. Richmond Fed President, Thomas Barkin, hinted that more data scrutiny is essential before determining future rate hikes. Supporting this cautious approach, Philadelphia Fed President Patrick Harker expressed that unless drastic shifts in economic indicators emerge, the interest rates might remain unchanged.

Short-term Outlook:  Neutral

Given the current economic climate, with a softened dollar, fluctuating yields, and the looming Consumer Price Index report, gold’s short-term outlook appears neutral. Investors are also monitoring emerging market stocks and their currency trends, especially with global interest rates witnessing a unique divergence. Meanwhile, in related news, Canadian gold mining giant Barrick Gold Corp surpassed Q2 profit expectations, further testament to gold’s enduring allure in these uncertain times.

Technical Analysis

Currently, Gold (XAU) is trading at $1931.87, which is below both its 200-4H moving average of $1941.16 and its 50-4H moving average of $1943.14. This positioning suggests bearish sentiment as the commodity is unable to breach these significant levels. The 14-4H RSI, at 44.41, indicates weaker momentum, while climbing toward neutral or a 50 reading.

Gold is trading above its main support zone of $1914.00 to $1902.75, offering a buffer against further declines. However, with the current price well below the main resistance range of $1979.00 to $1987.53, upward movement might face hurdles. Given its position beneath both moving averages and proximity to support, the short-term market sentiment for Gold seems bearish. But conditions could change rapidly if buyers can overcome both the 50-4H and 200-4H moving averages.