Gold Daily | Strong Dollar and Rate Cut Speculation Cause Gold Prices to Dip Below $2,510
Wednesday, Aug 28, 2024 8:00 am ET
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**Latest Gold Price and Recent Trends**On Wednesday, international gold prices declined due to a stronger dollar, as investors awaited a critical U.S. inflation report this week to gain clearer insights on the potential rate cut by the Federal Reserve in September. After three consecutive days of gains, spot gold faced slight pressure and hovered around $2,510, with an intra-day low of $2,503 and a high of $2,528.97. Gold had hit an all-time high of $2,531.60 on August 20. The dollar index rose by 0.2%, diminishing the appeal of gold for foreign currency holders. However, the overall forex market remained relatively calm as traders awaited new indicators on the state of the global economy. Investors unanimously believe that the Federal Reserve will begin cutting rates next month. Last week, Federal Reserve Chairman Jerome Powell struck a dovish tone, and the current debate centers around whether the Fed will significantly cut rates by 50 basis points. According to CME's FedWatch tool, the market currently estimates a 66% probability of a 25 basis points rate cut in September, while the probability of a 50 basis points cut stands at 34%. It is expected that the Fed will cut rates by over 100 basis points by the end of the year. Gold tends to perform well in a low-interest-rate environment.**Technical Analysis**On Wednesday, during the early European session, gold dropped suddenly by $20, stabilizing around $2,508. Technical analysis indicates that after forming a bearish engulfing candle, gold risks breaking below $2,500, putting key support levels under pressure. Despite expectations of Federal Reserve rate cuts and geopolitical tensions, the dollar's mild rebound poses further challenges to gold. The key support level is $2,500; a drop below this could lead to further declines to $2,470. FXEmpire analyst Arslan Ali noted that gold currently trades at $2,511.06, with a bearish engulfing candle pushing prices below the pivot point of $2,516.55, suggesting a further decline. The next immediate support level is at the psychological threshold of $2,500, consistent with the 50-day moving average of $2,500.17. This area might offer strong support and could trigger a bullish rebound. However, if gold prices fall below this level, it may lead to a more significant decline, with the next support levels at $2,486.23 and $2,470.51.FXStreet senior analyst Dhwani Mehta noted that gold continues its deep intraday pullback, with prices currently around $2,508, having plummeted nearly $17. Despite the dollar's attempt to rebound, gold remains above $2,500. Mehta pointed out that as long as buyers defend the triangle's resistance-turned-support level of $2,466, the bullish outlook remains intact. The 21-day simple moving average (SMA) near this level makes it a strong support area.Economies.com stated that the technical outlook suggests a bearish signal, with the first bearish target aimed at $2,483.40. The stochastic indicator currently shows negative signals, supporting the expectation of a price drop in the coming sessions. Economies.com forecasts that today's gold trading range will be between the support level of $2,490.00 and the resistance level of $2,530.00.**Market Sentiment and Economic Background**Market participants are closely watching the U.S. Personal Consumption Expenditures (PCE) data, the Federal Reserve's preferred inflation gauge, which will be released on Friday. Additionally, the initial estimate of U.S. GDP for the second quarter will be released later this week. A report on Tuesday indicated that U.S. consumer confidence in August rose to a six-month high, but concerns about the labor market increased.The potential for significant rate cuts by the Federal Reserve has been a key focus for investors. Federal Reserve Chairman Jerome Powell's recent dovish comments have bolstered expectations for impending rate cuts. The market is also keeping an eye on upcoming speeches by Federal Reserve officials Christopher Waller and Raphael Bostic for further insights into the Fed's rate path.Geopolitical tensions, particularly in the Middle East, continue to support gold prices. However, despite the demand for safe-haven assets driven by conflicts, gold struggles to maintain its upward momentum. ETF holdings of gold increased by 15 tons last week, reaching a six-month high. Speculative interest also rose, with net long positions held by speculative investors increasing to approximately 193,000 contracts as of August 20, reflecting strong market interest in gold.**Analyst Opinions**Daniel Ghali, Senior Commodity Strategist at TD Securities, opined that while the Federal Reserve is highly likely to cut rates in the coming weeks, the possibility of a pullback in gold prices is increasing. He warned that the macro fund positioning indicator is flashing warning signals, suggesting caution as sell-off activities intensify.Business Insider reported that Michael Hartnett, an investment strategist at Bank of America, recommended that investors should buy gold, following the actions of central banks. He argued that potential rate cuts by the Fed could trigger an inflation rebound next year, during which physical assets like gold historically perform well. Hartnett noted that despite the record-high gold prices, investors have been net sellers, indicating that central banks' unprecedented buying explains the high prices.