Gold Price Trades With Slight Downtrend Above $2,500, Bullish Potential Looks Intact

• The gold price is struggling to capitalize on Friday’s breakout momentum amid a positive risk tone.
• Fed rate cut bets, along with geopolitical risks, could continue to support the metal.
• Traders are looking to the FOMC minutes and Fed Chair Powell’s speech this week for fresh impetus.

The price of gold (XAU/USD) hit a new record high – levels above the psychological $2,500 threshold – on Friday and drew support from a combination of factors. The US dollar (USD) came under renewed selling pressure and fell back closer to its lowest level since hitting January earlier this week, which in turn benefited commodities. Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war provided further boost to the safe haven precious metal.

Meanwhile, easing fears of a possible recession in the United States (US) continue to support prevailing risk-on sentiment and put some pressure on gold prices during Monday’s Asian session. Traders are also choosing to lighten their bets and prefer to wait for more clues about the path of Federal Reserve (Fed) policy before positioning for the next step of a directional move. The focus therefore remains on the release of Wednesday’s FOMC meeting minutes and Fed Chairman Jerome Powell’s appearance at the Jackson Hole Symposium.

Daily Digest Market Movers: Gold price continues to draw support from dovish Fed expectations and geopolitical tensions

• Dovish Federal Reserve expectations, along with rising geopolitical tensions in the Middle East, lifted the price of gold to a new record – levels above the psychological $2,500 threshold – on Friday.
• The US Producer Price Index and Consumer Price Index released last week indicated that inflation is on a downward trend, which keeps the Fed on track for a 25 basis point rate cut in September.
• That, to a greater extent, overshadowed upbeat US retail sales data on Thursday, which eased concerns about a recession in the world’s largest economy and drew fresh sellers around the US dollar.
• Moreover, the University of Michigan’s preliminary report showed that the US consumer sentiment index improved for the first time after four months of declines and rose to 67.8 in August.
• Another key part of the report showed that expectations for headline inflation over the next year held steady at 2.9 percent and over the next five years were unchanged for the fifth month in a row at 3 percent.
• However, this did little to impress USD bulls amid bets on an imminent start to the Fed’s policy easing cycle, which was a key factor driving flows into the non-yielding yellow metal.
• Chicago Fed President Austan Goolsbee said the U.S. economy shows no signs of overheating, so central bank officials should be careful about keeping tight policy in place longer than necessary.
• San Francisco Fed President Mary Daly downplayed concerns about a sharp slowdown in the US economy, although she said the US central bank needed to take a gradual approach to reducing borrowing costs.
• Investors are now looking to the FOMC minutes, due out on Wednesday, and Fed Chairman Jerome Powell’s comments at the Jackson Hole Symposium on Friday for clues about the future path of rate cuts.
• On the geopolitical front, Hamas issued an official statement on Sunday rejecting the terms of a hostage release and ceasefire deal that were discussed in Doha on Thursday and Friday.
• Russia has vowed to retaliate for Ukraine’s surprise cross-border attack in the Kursk region, which marked the first time since World War II that a foreign army has fought in the country.

Technical analysis: Gold price bulls have the upper hand, support zone for the return to $2,470-$2,472 holds the key

From a technical perspective, Friday’s break through the $2,470-$2,472 horizontal barrier and subsequent strength beyond the previous all-time high was seen as a new trigger for bullish traders. Additionally, the oscillators on the daily chart are holding in positive territory and are still far from overbought, suggesting that the path of least resistance for gold prices is up. That said, the failure to consolidate momentum beyond the psychological $2,500 threshold calls for some caution for bulls. Therefore, it will be prudent to wait for some further buying beyond Friday’s all-time high around the $2,509-$2,510 area before positioning for any further gains.

On the other hand, the $2,472-$2,470 resistance pullback point now appears to protect the immediate downside. Any further decline is more likely to attract new buyers and remain limited near the $2,448-$2,446 region. The latter should act as a crucial key point for short-term traders, which if decisively broken should pave the way for deeper losses. Gold price could then accelerate the corrective slide towards the 50-day simple moving average (SMA), currently fixed near the $2,388-2,387 area, with an intermediate support near the $2,400 round figure.