Gold (XAU) Daily Forecast: Bearish Engulfing Candle Signals Risk of Drop Below $2,500

Market Overview

Gold prices (XAU/USD) continued their downward trend, trading around $2,511.06, with an intra-day low of $2,505.62. The modest recovery in the US Dollar has been the primary factor driving this decline.

However, escalating geopolitical tensions in the Middle East and expectations of an imminent rate cut by the US Federal Reserve may help limit further losses.

Impact of US Economic Data and Fed Rate Expectations on Gold

The US Dollar gained traction on Wednesday despite Federal Reserve Chair Jerome Powell hinting at potential rate cuts during his speech at the Jackson Hole symposium.

Lower interest rates typically support gold by reducing the opportunity cost of holding non-yielding assets. Investors are now closely watching upcoming speeches from Fed officials Christopher Waller and Raphael Bostic for more insights into the Fed’s interest rate trajectory.

Consumer Confidence: The US Consumer Confidence Index reached a six-month high in August, climbing to 103.3, up from 101.9 in July.

Housing Data: The US Housing Price Index fell by 0.1% in June, missing market expectations of a 0.2% increase.

According to the CME FedWatch Tool, markets have fully priced in a 25 basis point (bps) rate cut in September, with a 34.5% chance of a deeper cut. Traders are also expecting a total of 100 bps in rate cuts by the end of the year.

These potential rate cuts could support gold prices, although the strengthening US Dollar may limit the upside.

Geopolitical Tensions and Market Dynamics Influence Gold

Geopolitical tensions, particularly in the Middle East, are also playing a role in supporting gold prices. However, despite the conflict-driven demand for safe-haven assets, gold is struggling to maintain its gains.

ETF Holdings: Bloomberg reports that Gold ETF holdings rose by 15 tonnes last week, reaching a six-month high.

Speculative Interest: The net long position of speculative investors increased to approximately 193,000 contracts as of August 20th, reflecting strong market interest in gold.

While geopolitical risks and expectations of lower interest rates have boosted gold’s appeal, the market is currently experiencing a pullback, driven by profit-taking and the stronger US Dollar.

Short-Term Forecast

Gold is likely to remain under pressure near $2,511.06, with $2,500 serving as a key support level. A break below this could lead to further declines.

Gold Prices Forecast: Technical Analysis

Gold (XAU/USD) currently trades at $2,511.06, down 0.35% on the day. A bearish engulfing candle has pushed the price below the $2,516.55 pivot point, signalling potential further downside.

The next immediate support lies at the psychological level of $2,500, which aligns with the 50-day EMA at $2,500.17. This area could be strong support, potentially triggering a bullish bounce.

However, if gold breaks below this level, it could lead to a sharper decline. The next supports are $2,486.23 and $2,470.51. Gold remains bullish above $2,500, but a break below could trigger a sharp sell-off.