Gold (XAU) Price Forecast: Is a Reversal Top Forming Ahead of Powell’s Testimony?

Gold Retreats After Record High as Traders Brace for Potential Correction

Gold prices surged to another record high at $2,942.78 before pulling back, signaling the possibility of a short-term correction. The early rally was fueled by safe-haven demand as concerns grew over U.S. President Donald Trump’s aggressive trade policies. However, the early-session reversal has raised the potential for a bearish closing price reversal top, which could trigger a brief pullback.

At 11:05 GMT, XAU/USD is trading $2903.91, down $4.265 or -0.15%.

Technical Indicators Flash Warning Signs

Gold’s rapid ascent has left it significantly overextended, with some analysts cautioning that the market is overheated. The relative strength index (RSI) has been in overbought territory for several days, prompting expectations of a near-term retracement. Additionally, the gap between the recent high and the 50-day moving average at $2,702.43 is unusually wide. Historically, such a spread indicates an overbought market that may be due for a correction.

If a reversal pattern confirms today, gold could see a 2-3 day decline, with key downside targets at the 50% retracement levels. These include minor support at $2,888.52, $2,857.49, and $2,836.67, with stronger support near $2,763.34.

Trade War Fears Stoke Safe-Haven Demand

Gold’s recent rally was largely driven by Trump’s decision to impose a flat 25% tariff on steel and aluminum imports, escalating fears of a multi-front trade war. The move, which lacks exemptions, is expected to impact global markets and increase inflationary pressures in the U.S. economy.

Uncertainty surrounding Trump’s policies has strengthened gold’s appeal as a hedge, with some traders eyeing the psychological $3,000 mark as the next key level. U.S. gold futures are holding a slight premium, trading at $2,936.10 compared to spot gold’s current level.

Fed Policy and Inflation Data in Focus

Traders are now closely monitoring Federal Reserve Chair Jerome Powell’s testimony and Wednesday’s U.S. inflation data for clues on future interest rate moves. A Reuters poll suggests the Fed will likely hold off on cutting rates until next quarter, especially if inflation spikes due to higher import costs.

Gold’s bullish momentum could stall if Powell signals a more hawkish stance or if inflation data surprises to the upside. Higher interest rates would dampen gold’s appeal, as the non-yielding asset typically loses favor when borrowing costs rise. Conversely, a dovish Fed outlook or weaker inflation data could reinforce gold’s uptrend.

Gold Price Forecast: Correction Before the Next Leg Higher?

While gold remains in a strong uptrend, today’s reversal raises the risk of a near-term pullback. If prices close lower, traders should watch for a technical correction targeting the support levels mentioned above. However, given ongoing trade tensions and inflation risks, any dip is likely to be viewed as a buying opportunity.

A sustained break above $2,942.78 would shift the focus back to the upside, with $3,000 becoming an increasingly realistic target. Until then, traders should brace for potential volatility and short-term selling pressure.

More Information in our Economic Calendar.