Gold: two steps forward, one step back

Gold: two steps forward, one step back

2020-08-31 • Updated

The yellow metal has loosened its’ previous steam, but some analysts believe it may rally again. What may underpin gold?

To begin with, the recent Fed’s statement influenced the whole Forex market and, especially, gold. US authorities allowed inflation and employment to run above standard levels, indicating that interest rates will remain near zero for longer. As a result, it makes the low-yielding US dollar less favorable for investors. Most of the time the depreciation of the USD leads to the appreciation of gold, as it reduces the alternative cost of holding non-yielding bullion. In other words, the US dollar loses its main advantage over gold, when interest rates are low.

Nevertheless, traders are not in a hurry to buy the metal. Perhaps, they believe more in the potential of silver amid the technological boom due to its’ industrial application. By the way, silver rose by 14% in August, while gold contracted by 0.25%. Coming back to gold, the current risk-on movement may add some headwinds to it, undermining its safe-haven position.  The market mood improved today after the better-than-expected Chinese PMI data. As you may know, investors use Chinese economic indicators as an initial assessment of how fast the global economy may recover. Therefore, today’s optimistic release combined with vaccine developments cheered investors up.  

However, according to FXTM: “Gold will continue to be one of the best beneficiaries of the dollar’s weakness so expect to see a retest above $2,000 in the upcoming weeks”.

Technical tips

XAU/USD has approached the key resistance of $1 975, which it has failed to cross a few times. The move above this level will drive the price to the psychological mark of $2 000. In the opposite scenario, if the yellow metal slumps below the low of August 28, the way to the next support of $1 930 will be open. Follow further news on gold and catch the market movement!

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