Gold Prices Stagnant Ahead of Powell's Senate Testimony

: George Solotarov; 09 July 2024; Hits: 138

Gold Prices Stagnant Ahead of Powell's Senate Testimony

Gold (XAU/USD) is hovering around the $2,360 mark on Tuesday, stabilizing after a significant drop on Monday. The decline was triggered by news that the People's Bank of China (PBoC) hadn't purchased any gold in June for the second consecutive month, ending an 18-month streak of reserve building.

Trump's Potential Impact on Bond Markets Affects Gold

The increased likelihood of former President Donald Trump winning the US presidential election in November is also impacting gold prices. Trump's expected tax cuts and borrowing could worsen the US fiscal position, leading to higher inflation and interest rates. This scenario is detrimental to gold, a non-interest-bearing asset that loses appeal when interest rates rise.

The possibility of a Trump presidency is driving bond prices down and yields up, benefiting the US dollar due to its strong correlation with yields. This, in turn, weighs on gold prices, which are primarily traded in USD. Concerns about President Biden's cognitive abilities and the Supreme Court's ruling on Trump's partial immunity from responsibility for the Capitol Hill riots further strengthen Trump's position.

A key event for gold prices on Tuesday is Federal Reserve Chairman Jerome Powell's testimony to the Senate Banking Committee. Powell is expected to maintain his cautious, data-dependent approach, leaving investors uncertain about the Fed's next move.

Technical Analysis: Gold Forms a Two-Bar Reversal Pattern

Gold has formed a two-bar reversal pattern after reaching a major resistance level at the June 7 high of $2,388. This pattern, occurring at a market top, can signal a short-term reversal. The outlook is unclear, but gold could retrace to the 50-day Simple Moving Average (SMA) at $2,342. If gold surpasses Friday's peak of $2,393, it will continue its upward trajectory and likely target the $2,451 all-time high.

The recent recovery has invalidated the bearish Head & Shoulders topping pattern that formed from April to June. However, a more complex topping pattern may have formed instead. If this is the case and the price drops below the pattern's neckline at $2,279, a reversal lower could occur, with a conservative target of $2,171.

The trend is currently sideways in both the short and medium term. However, gold maintains an uptrend in the long term.