XAU/USD retreats from record highs, holds above $2,500

XAU/USD Current Price: $2,507.75

• Market optimism faded in the US session with the FOMC Minutes around the corner.
• China among the main buyers of gold, amid speculation, the USD will weaken further.
• XAU/USD could extend its corrective decline, but is still far from bearish.

Gold continued to rise in the first half of the day on Tuesday, hitting an all-time high of $2,531.60 amid persistent weakness in the US dollar and persistent demand for the safe-haven metal, particularly from Asia. Growing expectations that the Federal Reserve (Fed) will cut interest rates, which translates into further USD weakness, is pushing Chinese authorities and individual investors towards gold. However, the shiny metal has reversed course as Wall Street opened, and profit-taking is pushing XAU/USD towards the $2,500 mark.

Meanwhile, the positive tone in equities faded before the European close, with most local indexes closing in the red. US indices have followed the negative lead and are trading with modest losses, although not far from record highs. Overall, sentiment remains bullish and the US dollar is on the back foot despite the intraday drop in XAU/USD.

Wednesday’s focus will be on the minutes of the Federal Open Market Committee (FOMC). The document, usually released three weeks after the meeting, usually provides additional clues about decision makers’ thinking and future decisions. However, there is a good chance that the document will fall short of expectations and have little impact on the USD, given that policymakers have since shifted to a more accommodative tone. Market participants are pretty much convinced that the Fed will cut rates in September, and the Minutes have no chance of changing that belief.

XAU/USD Short Term Technical Outlook

The daily chart for the XAU/USD pair shows that the pair has room to extend its gains, with the recent pullback from record highs seen as corrective. The pair continues to develop well above all its moving averages, which maintain bullish slopes. The Momentum indicator, however, has retreated from its recent peak and is heading firmly south in positive bounds. Finally, the Relative Strength Index (RSI) indicator is consolidating around 65. A steeper decline seems unlikely in this scenario.

The 4-hour chart suggests that the ongoing pullback is far from confirming further declines. Technical indicators have pulled back sharply but are holding well above the median lines. At the same time, the moving averages are maintaining their upward slope, with the 20 Simple Moving Average (SMA) currently at around $2,492.70 and the 100 SMA targeting higher at around $2,439.60.

Support levels: 2,496.40 2,485.10 2,427.20

Resistance levels: 2,510.00 2,523.50 2,535.00