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Gold at the time of this report, seems to be moving in an upwards trajectory for the second week in a row, with the precious once again highlight its inverse correlation with the USD which may be the main factor behind the movement of gold’s price currently. We note the potential for high volatility in the gold market, due to the numerous high impact financial releases stemming from the US which are due to be released during the week. In this report, we aim to shed light on the catalysts driving gold’s price, assess its future outlook and conclude with a technical analysis.
Jackson Hole summit
Since the keynote speech from Fed Chair Powell at the Jackson Hole summit on Friday, the greenback appears be losing some ground, as market participants may be turning their attention to the release of key US economic data during the week. As such, despite the perceived hawkish rhetoric stemming from Fed Chair Powell at Jackson Hole, it appears that the US Treasury Yields are drifting slightly lower, which in turn may reduce demand for the dollar and given the inverse relationship between the greenback and the precious metal, it may have allowed the precious to capitalize on dollar weakness. In addition, the reduction of US Treasury Yields may have also provided support for gold, as the Treasury Yields are interest bearing, but if there is a reduced incentive due to the lower Yields, then it may provide support for the precious, as two are inversely related. In conclusion, the inverse relationships experienced by the precious metal with the US Treasury Yields and the greenback, may have provided support for the commodity, as we near key financial releases from the US this week. In the event that the financial releases from the US are indicative of a loosened labour market and perhaps a weaker US economy, we may see Gold further capitalizing on a weaker greenback, as expectations of further rate hikes may be reduced, thus allowing the precious to move in an upwards fashion.
Poland stocks up on Gold
According to Bloomberg, the Polish central bank has made its biggest gold purchase in four years in July, by adding 20.4 tons of Gold in a single month, which according to the World Gold Council, is the largest buyer amongst central banks in Q2. The ramping up of Gold purchasing by central banks could be part of a wider trend amongst Governments who may be worried about the BRICS bloc, which has been considered by the West to be attempting to counter the G4 and potentially increasing attempts to ramp up de-dollarization attempts, as China appears to be aiming to reduce the global influence of the dollar. Therefore, central banks such as that of Poland, may be increasing their gold reserves in anticipation of a gradual decoupling from the greenback, or in order to be able to continue economic relations with countries who are trying to decrease their reliance on the dollar. In conclusion, the potential risk of de-dollarization attempts, may lead to more banks increasing their gold reserves and as such by increasing demand, then we may see the precious’s price being supported in the long run.
Technical Analysis
XAUUSD H4 Chart
- Support: 1920 (S1), 1900 (S2), 1865 (S3)
- Resistance: 1943 (R1), 1971 (R2), 1995 (R3)
The precious metal appears to be moving in an upwards fashion, with the having broken above last week’s resistance now turned support at the 1920 (S1) level. We tend to maintain a bullish outlook for the commodity and supporting our case is the RSI indicator below our 4-Hour chart which currently is near the figure of 70, implying a bullish market sentiment, in addition to breaking above the upwards moving trendline incepted on the 21st of August. For our bullish outlook to continue, we would like to see a clear break above the 1943 (R1) resistance level, with the next possible target for the bulls being the 1971 (R2) resistance ceiling in addition to continuing to validate our upwards moving trendline formed on the 21st of August. On the other hand, for a bearish outlook, we would like to see a clear break below the 1920 (S1) support level if not also making a clear break below the 1900 (S2) key psychological support base, with the next possible target for the bears being the 1865 (S3) support level.
Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.
JA 
