Gold, after experiencing a slight decline, is showing signs of vulnerability as US Federal Reserve Chair Jerome Powells hawkish remarks have the potential to push it below a crucial support level. Previously, it was suggested that gold might not be ready to break below this support, as discussed in the article "Gold Price Setup: Can Stretched Long Positioning in XAU/USD Trump Technicals?" published on June 8. However, Powell's testimony before the House Financial Services Committee has lowered the threshold for further softening of the yellow metal.
During his testimony, Powell reiterated his hawkish stance, indicating that additional interest rate hikes are highly probable. He stated that the pause in June does not imply a halt in the hiking cycle, reaffirming the expectation of two more rate increases by the end of the year. Atlanta Fed President Raphael Bostic's comments, although slightly dovish overall, could have implications for the path of rate hikes, further adding to the pressure on gold rather than altering the trajectory.
The 240-minute chart reveals a reversal in the slope of the 89-period and 200-period moving averages from an upward to a downward trajectory. Despite minimal recent movement, XAU/USD has been unable to surpass these moving averages, and the formation of lower lows increases the likelihood of a short-term downward move.
On the daily chart, gold currently maintains a robust support level around 1930, which includes the end-May low, the 89-day moving average, and the lower boundary of the Ichimoku cloud. However, breaching this level could pave the way for a decline towards the 200-day moving average at approximately 1850. To alleviate immediate downward pressure, gold would need to surpass the 1970-1985 range.
The current weakness observed in gold appears to be influenced by the broader trends seen on higher timeframe charts, as previously emphasized in recent months.
The remarks made by Jerome Powell and the subsequent impact on gold highlight the interconnectedness between the precious metal market and forex. Gold, often considered a safe-haven asset, is particularly sensitive to changes in interest rates and central bank policies. Traders and investors who are active in the forex market should closely monitor developments in gold prices as it can provide valuable insights into market sentiment, risk appetite, and potential currency movements. Furthermore, the technical analysis conducted on XAU/USD, taking into account moving averages and support levels, demonstrates the relevance of forex traders incorporating multiple indicators and chart patterns when making trading decisions involving precious metals. By integrating a comprehensive understanding of gold price dynamics, forex traders can enhance their overall market analysis and improve their trading strategies.