Gold (XAU/USD) Holds High Ground Despite the DXY Advance, Where to Next?

Gold prices may have fallen back slightly from a 2-week high but remains up around 1.31% at the time of writing and on course to snap a 4-week losing streak. Gold has been a surprise this week given the early rise in US yields as well as strength in the Dollar Index (DXY) for the majority of the week.

US DATA, DOLLAR INDEX AND JACKSON HOLE

As Gold looks to snap its recent run of losses this week the US Dollar has remained supported on fears that the US Federal Reserve will need to keep rates higher for longer. This comes as US data with the exception of the PMIs this week remains strong. Strong labor data and US Durable Goods numbers yesterday further strengthening the idea of higher rates while hawkish Fed comments tied into the narrative.

Market participants are keenly awaiting the comments by Jerome Powell at the Jackson Hole Symposium later today. Given the strength on display by the Dollar Index (DXY) this week, it would appear that the majority of the hawkishness is priced in and could leave the Dollar with a touch task of advancing further. Should Powell convey a similar message as we have heard of late, I am not sure how much more bullishness does the Dollar Index have left in the tank. Without anything new from the Fed Chair there is a very real possibility of some Dollar weakness today heading into the weekend.

Looking at the DXY chart above and we have finally had a daily candle close above the descending channel yesterday running into resistance at the 104.28 mark this morning. As mentioned above should Chair Powell stick to the narrative later today, we could very well be in for a pullback toward the 103.50 handle.

A continued advance for the Dollar Index today faces a hurdle at the 105.00 psychological handle before resistance around the 105.60 mark which was the March swing high.

The Jackson Hole Economic Symposium in Wyoming is underway already with Fed Chair Jerome Powell speaking today. Given the lack of high impact data on the docket today the main driving force for markets is likely to be comments from a host of Central Bank policymakers scheduled to speak today. As I have said over the past couple of days, I do not expect fireworks in terms of policy changes or comments hinting at such as we had at last year's event given the market dynamics at present. Having said that, Volatility around the event is most likely a guarantee.

Form a technical perspective, Gold prices have closed below the 200-day MA on a daily timeframe for the first time since December 2022 this week but quickly recovered to trade back above. This surprised me as I had expected the 200-day MA to put up more resistance coupled with the stronger US Dollar we have seen this week as well.

Having rallied from the weekly low around the $1884 mark to around $1923 before a slight pullback yesterday, Golds remains in a delicate position ahead of the address by Jerome Powell at Jackson Hole. Immediate support s provided by the 200-day MA around the $1909 handle before a retest of $1900 opens the door toward support at the $1893 handle.

Alternatively, a move higher from here faces a tough task of breaking above the resistance area between the $1926-$1929 handle (pink area on the chart). A break and daily candle close above here would signal to that the bulls are firmly in control. Until then I still see downside potential and a further selloff in Gold as a serious possibility.

Markets do appear to be largely driven by the fundamental and macro pictures at the moment and thus my initial thoughts are that any move will likely be dependent on the message by Fed Chair Powell. The market reaction of late to data releases and policymaker comments have been mixed and sometimes downright confusing. As seen with the rising Dollar and Gold prices this week a sign of some disconnect at present and maybe worth remembering as the day progresses.