- Gold trades below key $3,200 support level as bearish sentiment intensifies following recent peaks.
- XAU/USD is consolidating within a bullish pennant formation, suggesting a potential continuation of the upward trend if support levels are maintained.
- A significant downward move below $3,200 could initiate a more pronounced retracement towards critical Fibonacci retracement levels.
Gold prices are experiencing downward pressure as investors reassess expectations regarding future interest rate adjustments and carefully analyze the mixed signals emanating from recent US economic data releases. As of this writing, XAU/USD has declined by 2.23% during the current trading session, falling below the $3,200 mark and extending its week-to-date losses to 4.26%. This decline reflects a cautious market sentiment amid uncertainty surrounding the Federal Reserve’s (Fed) monetary policy trajectory.
This pullback is indicative of the prevailing uncertainty surrounding the Federal Reserve’s (Fed) policy stance, as indications of moderating inflation are juxtaposed with robust labor market data. This complex macroeconomic environment has confined Gold prices within a range just below its historical high, as traders seek clearer signals to guide their investment decisions. Market participants are closely monitoring upcoming economic releases and statements from Fed officials for further clues regarding the central bank’s intentions.
Gold bears challenge bullish pennant support
Analyzing the daily chart, Gold has established a bullish pennant pattern, a continuation formation that typically suggests a possible resumption of the existing upward trend. The substantial price increase observed in April constitutes the flagpole of the pennant, while the current price action is consolidating within converging trendlines, indicating a period of tightening market conditions and indecision among investors.
However, the integrity of this pattern is now being tested. The price has breached the 20-day Simple Moving Average (SMA), currently positioned at $3,316.20, reflecting a degree of short-term weakness. Furthermore, the Relative Strength Index (RSI) has decreased to 47.13, suggesting a shift towards neutral-to-bearish momentum. These developments raise concerns about the sustainability of the bullish setup.
The immediate focus is centered on the horizontal support level at $3,200, which defines the lower boundary of the pennant formation. With prices currently trading below this level, a confirmed breach would invalidate the pattern and likely trigger a more significant correction. Conversely, a move above $3,300, particularly if it surpasses the descending trendline resistance, would reaffirm the bullish outlook and potentially pave the way for new all-time highs.
Gold (XAU/USD) daily chart
Gold slips below $3,200 as bullish momentum wanes
Taking a broader perspective, the weekly chart reveals that Gold remains in a consolidation phase following its surge to a record high of $3,500 in April. This upward movement was fueled by safe-haven demand and market anticipation of future interest rate reductions. However, the rally was swiftly met with profit-taking activity, as evidenced by a prominent upper shadow on the weekly candle – a signal of rejection and increasing resistance.
Since reaching that peak, Gold has fluctuated within a narrow horizontal range between $3,200 and $3,300, representing a temporary pause in the uptrend rather than a complete reversal. The long-term bullish structure remains intact, supported by an ascending trendline that originated from the low point in January. Crucially, the price is still holding above the 23.6% Fibonacci retracement level at $3,291, which is calculated from the January low to the April high. This Fibonacci level is acting as a key support.
Gold (XAU/USD) weekly chart
While the overall trend favors the bulls, the short-term outlook is contingent on how the price behaves within the critical $3,200–$3,300 range.
A decisive breakout above $3,300, particularly if accompanied by increased momentum and a breach of the descending trendline resistance, would confirm the continuation of the broader uptrend. In this scenario, Gold could potentially retest the $3,450–$3,500 area, with the possibility of establishing new record highs.
A confirmed breakdown below $3,200 would invalidate the pennant formation and expose Gold to more significant retracements, with support levels at $3,161 (38.2% Fibonacci retracement) and $3,057 (50.0% Fibonacci retracement) serving as potential downside targets.
Until a decisive breakout occurs, Gold is likely to remain confined within its current range, with short-term direction influenced by incoming macroeconomic data releases and policy signals from the Fed. Investors should closely monitor these factors to gauge the potential trajectory of gold prices.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
