Gold (XAU/USD) is selling off in Wednesday’s early European trading session, giving back a two-week high of $3,395 as dollar strength and profit-taking pressure the metal. Nevertheless, doubts regarding the independence of the US Federal Reserve, sparked by the bid to oust a Fed governor from former President Donald Trump, give the metal underlying support as investors look for safe havens. Traders currently look to Friday’s US July PCE inflation reading for new direction, with warmer-than-expected numbers set to restrict the Fed’s space for cutting rates. In addition, geopolitical tensions, most notably from the Russia-Ukraine conflict, are also dominant drivers of short-term gold price action.

KEY LOOKOUTS

• Profit-taking and firmer US Dollar are weighing on Gold below its recent two-week peak.

• Fed independence fears as Trump tries to remove a governor are underpinning safe-haven demand.

• US July PCE inflation reading on Friday may set the tone for Fed’s rate-reduction trajectory.

• Geopolitical tensions, particularly the Russia-Ukraine war, could spur new volatility in Gold prices.

Gold prices declined during initial European trading on Wednesday amid profit-taking and a small recovery in the US Dollar, which dragged the metal lower from a two-week high. Even this pullback has not dissuaded worries about the independence of the US Federal Reserve after former President Donald Trump’s bid to oust a Fed governor. Investors now focus on Friday’s US July PCE inflation report, which is seen to shape the Fed policy perspective and might determine Gold’s next direction. Also, persisting geopolitical tensions, notably the Russia-Ukraine war, remain a major driver for market sentiment of the yellow metal.

Gold recedes from two-week peak as profit-taking and US Dollar strength hamper prices. Nonetheless, Fed independence fears and geopolitical tensions continue to offer safe-haven support prior to the US July PCE inflation report.

• Gold pulls back from a two-week peak of $3,395 as profit-taking and US Dollar strength bear down on prices.

• Worry about the independence of the US Federal Reserve helps to underpin safe-haven demand for Gold.

• Donald Trump’s attempts to oust a Fed governor have injected political uncertainty.

• The US July PCE inflation report, expected at 2.6% YoY headline and 2.9% core, is awaited by traders.

• A more-than-anticipated PCE print would cap the Fed’s rate-cutting ability in September.

• Geopolitics, more so the conflict between Russia and Ukraine, continue to be major drivers of Gold sentiment.

• Despite near-term sell-offs, Gold remains in a bullish longer-term tone underpinned by safe-haven demand.

Gold is now walking a fine line as global market sentiment continues to be driven by both political and economic events. A stronger US Dollar and profit-taking have put pressure on it, yet safe-haven demand still supports the yellow metal. Political uncertainty has increased after Donald Trump’s actions against a Fed governor, raising doubts about the independence of the US Federal Reserve, prompting investors to turn to gold as a hedge against political and financial uncertainty.

XAU/USD DAILY PRICE CHART

SOURCE: TradingView

Meanwhile, investors are watching closely for coming economic statistics, specifically the US July PCE inflation reading, which will set the tone for monetary policy expectations. Aside from economic metrics, geopolitics such as the Russia-Ukraine war continue to be important, as further tensions will boost demand for gold, while indications of peace could soften its attraction. All these factors put gold in the limelight as investors consider risk versus security in an uncertain world.

TECHNICAL ANALYSIS

Gold holds a bullish bias even after the recent pullback, with prices keeping above the crucial 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is just above the midline at around 56.80, indicating continued bullish bias. The nearest resistance comes at the $3,400–$3,410 band, a breach of which could open the way for $3,439 and possibly the $3,500 level. On the downside, sustained weakness below $3,325 could expose the next support around $3,200, keeping traders cautious of any deeper correction.

FORECAST

Gold can continue to make gains if the price is pushed above the key $3,400–$3,410 resistance level. The journey upward can be sustained further towards $3,439, then the psychological $3,500 mark, which coincides with April’s highs. Safe-haven buying prompted by Fed independence fears and geopolitical tensions can add to the bullish momentum in the short term.

Conversely, however, if profit-taking and US Dollar strength remain in control, Gold may once again come under pressure. A firm breach below $3,325 would likely leave the next significant level of support at $3,200, which is the lower edge of the Bollinger Band. Any less-than-expected inflation figures or reduced geopolitical tensions would further fuel this downward move, curbing gold’s short-term attractiveness.