Gold declines on renewed US Dollar demand, Powell’s dovish signal might cap its downside

  • Gold price edges lower in Monday’s early European session. 
  • Fed rate cut hopes and rising Russia-Ukraine tensions could lift the Gold price. 
  • Traders brace for the preliminary reading of the US Q2 GDP report later on Thursday.  

The Gold price (XAU/USD) drifts lower to around $3,350 during the early European session on Monday, pressured by a stronger US Dollar (USD). Nonetheless, rising optimism of a September rate cut following comments by Federal Reserve (Fed) Chair Jerome Powell at the Jackson Hole symposium might cap the downside for the yellow metal. 

The Fed’s Powell has opened the door to a rate reduction in the September meeting, but that position could become complicated if inflation pressures continue to rise. Powell added that the US economy is facing a “challenging situation,” with inflation risks now tilted to the upside and employment risks to the downside. Dovish remarks from Powell could provide some support to the precious metal, as lower interest rates could reduce the opportunity cost of holding Gold. 

Additionally, the escalating tensions between Russia and Ukraine might contribute to gold’s upside. Ukrainian President Volodymyr Zelensky said that the country would continue to fight for its freedom “while its calls for peace are not heard,” in a defiant address to the nation on its independence day, per BBC. His comments came after Moscow said Ukraine had attacked Russian power and energy facilities overnight, blaming drone attacks for a fire at a nuclear power plant in its western Kursk region.

Gold traders will keep an eye on the preliminary reading of the US Gross Domestic Product (GDP) for the second quarter (Q2), which will be released later on Thursday. The US economy is expected to grow at an annual rate of 3.0% in Q2. In case of a stronger-than-expected outcome, this could boost the Greenback and weigh on the USD-denominated commodity price.

Daily Digest Market Movers: Gold price loses momentum amid firmer US Dollar

  • St. Louis Fed President Alberto Musalem said on Friday he will need more data before deciding to support a rate cut at the September meeting, warning inflation remains above the Fed’s 2% target. 
  • Boston Fed President Susan Collins said that the overall economic fundamentals in the US are relatively solid. Nonetheless, she added that the central bank doesn’t rule out a larger and more persistent impact of tariffs on inflation.
  • Russian Foreign Minister Sergey Lavrov stated on Sunday that Russian President Vladimir Putin “is ready to meet” with Zelenskyy when the agenda is ready for a summit. But he said that no meeting is currently planned.
  • Traders are now pricing in nearly an 85% possibility of a 25 basis points (bps) rate cut next month, up from 75% before the speech, according to the CME FedWatch tool.
  • Physical gold demand in key Asian hubs remained subdued last week as price volatility kept buyers at bay, while jewelers in India resumed buying ahead of a key festival season.

Gold retains a bullish tone in the longer term

The Gold price trades in negative territory on the day. Technically, the precious metal keeps the bullish vibe on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). However, in the near term, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) is hovering around the midline. This suggests the neutral momentum in the near term. 

The key resistance level for yellow metal emerges in the $3,400-3,410 zone, representing the psychological level, the upper boundary of the Bollinger Band, and the high of August 8. Sustained trading above this level could take XAU/USD back toward $3,439, the high of July 23. The next hurdle is seen at $3,500, the round figure, and the high of April 22. 

In the bearish event, the initial support level for the yellow metal is located at $3,315, the low of August 19. A break below the mentioned level might even drag the gold price lower to $3,285, the lower limit of the Bollinger Band. The next contention level to watch is $3,268, the 100-day EMA.

Source: https://www.fxstreet.com/news/gold-price-forecast-xau-usd-drifts-lower-to-3-350-despite-powells-dovish-signal-202508250033