Gold (XAU/USD) extended its losses on Wednesday, hitting a nearly three-week low amid continued USD strength and renewed hopes for a Russia-Ukraine peace deal. The precious metal remains under pressure as market participants weigh monetary policy expectations, geopolitical developments, and technical support levels.
Eric Muller, a broker at Highmont Group, sheds light on this subject with clarity and expertise.
During the Asian session, Gold traders observed that the 100-day Simple Moving Average (SMA) could serve as a pivotal line of defense. Bears are now poised for a sustained break below this level, which could trigger further downside for the commodity.
Meanwhile, the US Dollar (USD) continues its uptrend, supported by diminishing expectations of a jumbo Federal Reserve (Fed) rate cut in the near term. This dynamic has historically weighed on non-yielding assets like Gold.
USD Strength Driven by Fed Outlook
The US Dollar has extended gains for the third consecutive day as market participants price out the possibility of aggressive monetary easing. Investors are reacting to signals that the Fed may not deliver a large-scale interest rate cut in September, despite recent political commentary.
This expectation has pushed the USD to its highest level in over a week, undermining Gold, which traditionally benefits from a weaker dollar.
Recent US economic data reinforced this sentiment. The Producer Price Index (PPI) for July rose at its fastest monthly pace since 2022, signaling persistent inflationary pressures and strengthening the case for a cautious Fed.
Traders are now focusing on the upcoming FOMC meeting minutes and Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, which could provide further clarity on the central bank’s policy path.
Geopolitical Optimism Weighs on Gold
Geopolitical developments are also influencing Gold flows. Renewed optimism around a potential Russia-Ukraine peace deal has prompted investors to reduce positions in traditional safe-haven assets.
White House announcements indicated that bilateral talks between the Russian President and the Ukrainian President are underway.
Earlier diplomatic engagements included meetings hosted by the US President, bringing together Ukrainian, EU, and UK leaders. The Ukrainian President described these talks as a “major step forward” toward ending one of Europe’s deadliest conflicts in decades.
While the US President indicated that ground troops would not be deployed, he suggested air support might be part of a negotiated settlement. Conversely, Russian military operations continued, including drone strikes and missile launches into Ukrainian territory, underscoring ongoing regional volatility.
Technical Outlook: Bears Eye Key Support
From a technical perspective, Gold faces critical support levels. A decisive break below the 100-day SMA, the first since December 2024, could accelerate the downtrend.
Daily oscillators are beginning to show negative momentum, indicating the potential for a sharp slide toward the $3,270–$3,265 horizontal support. This zone represents the lower boundary of a three-month trading range and serves as a pivotal decision point for market participants.
On the upside, any attempted recovery is likely to encounter resistance near $3,335, followed by the weekly peak around $3,358. A sustained move above this level could trigger short-covering rallies, potentially lifting Gold toward the $3,375 intermediate hurdle and even challenging the $3,400 mark.
Beyond that, the $3,434–$3,435 heavy supply zone marks the top of a multi-month trading range, where selling pressure may intensify.
Market Sentiment and Forward Guidance
Investor sentiment is increasingly influenced by policy cues from the Fed and geopolitical developments. According to the CME Group’s FedWatch Tool, traders are pricing in a growing probability that the Fed may initiate a rate-cutting cycle in September, with 25 basis point reductions potentially occurring twice by year-end.
Political commentary remains a factor, with the US President publicly criticizing Powell for delayed rate cuts and warning that higher borrowing costs could hurt the housing market. Powell has maintained a neutral stance, signaling that any future policy adjustments will depend on incoming data rather than external pressures.
Conclusion: Gold Remains Vulnerable
In summary, Gold is contending with multiple headwinds. USD strength, diminishing Fed rate-cut expectations, and renewed hopes for a Russia-Ukraine settlement are driving the current bearish momentum. A break below the 100-day SMA could trigger further downside, with support zones between $3,270 and $3,265 under scrutiny.
Conversely, any recovery above $3,335 and $3,358 may invite short-covering and a potential rally toward $3,400–$3,435. Traders and investors will closely monitor the FOMC minutes, Powell’s speech, and geopolitical developments for cues on the next directional move in Gold.
Overall, XAU/USD remains sensitive to USD fluctuations, central bank policy, and geopolitical sentiment, making it a focal point for technical and fundamental analysis in the near term.
