- Gold accelerates its downtrend as the US Dollar picks up, supported by bouncing US yields.
- The focus today is on US services data, which is expected to have expanded in July.
- XAU/USD is on a bearish correction from $3,385, with bears aiming for $3,345 support.
Gold (XAU/USD) is accelerating its reversal from two-week highs at $3,385 on Tuesday. A moderate rebound in US Treasury yields and a somewhat firmer USD are weighing on the precious metal as the markets shift their focus away from Friday’s poor employment report.
The US Dollar Index is attempting to pare losses from Friday’s sell-off, ahead of the release of US services PMI readings. Final readings from S&P Global and the ISM institute, due later today, are expected to show that the sector’s business activity improved in July, which might help the US Dollar to extend its rebound.
Technical analysis: XAU/USD is on a bearish correction, aiming for $3,345
A look at the 4-hour chart suggests a reversal from the 61.8 Fibonacci retracement of the late July sell-off, with the Relative Strength index still above the 50.0 level, which highlights the bullish trend.
Downside attempts are likely to find support at the area between Monday’s low of $3,345 andthe 38.2% Fibonacci retracement of the previously mentioned cycle, which meets the July 29 and 30 highs, at $3,335. Further down, the next target is the August 1 low, at $3,280.
To the upside, Bullion should breach Monday’s high at $3,385 to put bulls back in charge and aim for the 78.6% retracement, at the $3,400 round level, ahead of July’s highs, at $3,330-$3,340.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
