Gold Retreats From Recent Highs On Stronger US Dollar

Following mixed economic data and the stronger US dollar which is in the green territory, up 0.23% and trades in the 104.569 neighborhood, the price of gold is finding it difficult to gain momentum. The dollar increased 0.2% ahead of this week’s pivotal Federal Open Market Committee’s meeting, and on Monday the metal hit a daily high of $2,403 before tumbling back to $2,377.

Looming FOMC Decision

The FOMC’s monetary policy decision will be announced following the two-day meeting starting Tuesday and ending on Wednesday with an official statement and press conference by Fed Chair Jerome Powell, is eagerly awaited by investors. Even though it is generally anticipated that the Fed will keep interest rates unchanged, market players are watching closely for any indications that more rate cuts may be imminent. According to data, traders may be expecting the Fed to take a dovish attitude, which might result in three rate decreases before the year ends.

US Dollar Strength, Economic Data Influence

The strong US currency is pushing up the price of gold. For people with foreign currencies, gold is a less alluring investment when the dollar is strong. Furthermore, recent US inflation readings have revealed to be stickier than expected, even if they are going towards the Fed’s 2% target. This could affect gold prices and the Fed’s decision-making about three cuts prior to the end of the year.

Geopolitical Risks Offer Support

Partially mitigating the gold price decline are ongoing geopolitical tensions. Hezbollah’s recent rocket attack on Israel raises concerns about a wider Middle Eastern conflict, a scenario that typically bolsters gold’s safe-haven appeal.

Technical Outlook: Awaiting Direction

Despite earlier bullish signals, gold failed to decisively break above the $2,400 resistance level. The Relative Strength Index (RSI) suggests a pause in buying momentum, with the metal currently consolidating around $2,370-$2,380. A breach of $2,400 could propel prices towards $2,450 and potentially challenge the all-time high near $2,483. Conversely, a sustained drop below the 50-day moving average at $2,358 could trigger further declines towards the $2,300 level.

Other Central Banks on Watch

Adding another layer of complexity are upcoming monetary policy decisions from the Bank of Japan (BoJ) and the Bank of England (BoE). The BoJ is expected to raise rates by 15 basis points, while the BoE is anticipated to begin an easing cycle in August. These contrasting stances from major central banks will undoubtedly influence global market sentiment and, consequently, gold prices.

Tug-Of-War Game

The price of gold is caught in a tug-of-war between the upcoming FOMC decision, the US dollar’s strength, and ongoing geopolitical tensions. Investors are closely monitoring the FOMC meeting for clues about future rate cuts, a dovish stance potentially triggering a gold price rally. The US dollar’s strength and mixed economic data are exerting downward pressure on gold. Geopolitical risks, however, offer some support. Technically, gold is in a holding pattern, with a breakout above $2,400 or a drop below the 50-day moving average likely dictating the next move. The decisions from the BoJ and the BoE add another dimension to the equation, making the coming days critical for the direction of gold prices.