XAU/USD holds gains above $2,500, higher highs in sight

XAU/USD Current Price: $2,515.31

• Macroeconomic developments in the United States encouraged short-term buying of US dollars.
• The US will release the Federal Reserve’s preferred inflation gauge at the end of the week.
• XAU/USD could correct the downside in the near term, although new highs are still on the table.

Spot Gold maintains its bullish trend earlier in the week, extending Friday’s gains towards last week’s record high of $2,531.60. The US dollar traded mixed on FX but was broadly weak after Federal Reserve (Fed) Chairman Jerome Powell said the time had come for monetary policy to adjust, speaking at the Jackson Hole Symposium. Once again, Powell made an interest rate cut conditional on incoming data, but market participants are confident that the Fed will offer an interest rate cut at its next meeting in September.

Apart from that, the United States (US) on Monday released durable goods orders that unexpectedly rose 9.9% in July, much better than the previous 6.9% or 4% expected. Also, the Dallas Fed manufacturing index improved in August to -9.7 from -17.5 previously.

Meanwhile, action by financial boards remains limited ahead of critical US data. The country will release July’s personal consumption expenditures (PCE) price index, the Fed’s favorite gauge of inflation, next Friday. Annual growth is currently forecast at 2.5%, equal to June’s reading, while monthly inflation is expected at 0.2%, slightly higher than the previous 0.1%.

XAU/USD Short-Term Technical Outlook

The daily chart for XAU/USD shows the shiny metal hovering around Friday’s high and aiming to extend gains. Technical indicators have lost some of their upside, but are holding well above their median lines, far from suggesting bullish exhaustion. At the same time, Gold is above all of its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north around $2,458.75.

In the short term, technical readings on the 4-hour chart suggest that a corrective decline may develop over the next few sessions. Technical indicators have pulled back from recent lows and are heading firmly down, albeit at positive levels. At the same time, the 20 SMA remains directionless, just below the intraday low, while the 100 and 200 SMAs maintain their bullish slopes below the shortest, limiting the case for a steeper decline.

Support levels: 2,508.80 2,496.40 2,485.10

Resistance levels: 2,523.50 2,531.60 2,542.00