empty
08.09.2023 03:11 PM
XAU/USD: Where will the pendulum swing?

This image is no longer relevant

"If stronger economic activity continues, it could lead to a resurgence in inflation," said Lorie Logan, the head of the Federal Reserve Bank of Dallas, on Thursday, adding that the strength of the labor market indicates that "we [the Fed] haven't finished the job of restoring price stability."

These important statements from the Fed representative came after positive macroeconomic data from the United States was published. For example, on Thursday, the U.S. Department of Labor released its weekly report stating that, for the reporting week (as of September 1), the number of initial jobless claims dropped to 216,000 (from 229,000 the previous week, with a forecast of 234,000), while continuing claims (for the week of August 25) fell to 1.679 million (from 1.719 million the previous week, with a forecast of 1.715 million).

Additionally, labor costs per unit of labor (in the 2nd quarter) were revised upward to +2.2% from the initial estimate of +1.6%, which is also a kind of leading indicator for consumer inflation in the medium term.

Furthermore, data published on Wednesday reflected growth in the August ISM Business Activity Index in the U.S. service sector (from the Institute for Supply Management) - reaching 54.5 (compared to 52.7 in July and a forecast of 52.5) after 53.9 in June, 50.3 in May, 51.9 in April, 51.2 in March, 55.1 in February, and 55.2 in January 2023. The U.S. service sector employs a significant portion of the country's population and contributes more to GDP than the manufacturing sector (78% versus 21% from the manufacturing sector and 1% from agriculture).

Positive macroeconomic statistics increase the chances of the U.S. economy avoiding a recession, while the Federal Reserve may still decide to further raise interest rates to continue the fight against high inflation.

Meanwhile, unemployment in the U.S. remains at pre-pandemic lows (3.8% in August), and average hourly wages continue to rise (+0.2% after increases of +0.4% in July and June, +0.3% in May, +0.5% in April, +0.3% in March, +0.2% in February, and +0.3% in January 2023), creating conditions for consumer inflation growth.

This, combined with positive GDP dynamics, is a bullish factor for the dollar as it prompts the country's central bank to adhere to a tight monetary policy.

Now, market participants, with a probability of about 43%, according to CME Group data, expect the Fed to raise its interest rate by 0.25% in November, although in September, it "may be appropriate" for the U.S. central bank to skip a rate hike, as Logan believes.

The high level of investor confidence that the Fed will maintain a hawkish stance and keep interest rates high for an extended period provides support to the U.S. dollar while limiting more active growth of its competitor among safe-haven assets—gold. As is known, gold prices are quite sensitive to changes in the credit and monetary policies of major central banks, especially the Fed.

Thus, on Thursday, the DXY index reached its highest level since March 3 at 105.12, rising for the eighth consecutive week and maintaining a positive trend.

At the same time, the XAU/USD pair, after breaking through important support levels of 1927.50 and 1926.50 earlier in the week, entered a short-term bear market zone.

This image is no longer relevant

A more successful attempt to break through important support levels at 1909.00, 1900.00, and 1896.00 and further decline will lead XAU/USD into a medium-term bear market zone.

However, in conditions of sustained high inflation, ongoing geopolitical uncertainty, concerns about a global economic downturn, and deteriorating relations between the U.S. and China, demand for gold will also be supported.

Therefore, gold buyers and the XAU/USD pair could expect a resumption of their price growth near the support levels of 1909.00 and 1900.00.

Next week (Wednesday), fresh inflation data for the U.S. will be published.

If they once again indicate a resurgence in inflation (U.S. year-on-year inflation in July increased to +3.2% from +3.0% in June, although slightly below the forecast of +3.3%), this will prompt the Fed to, at the very least, keep interest rates at high levels, and at most, continue to raise them. This is undoubtedly a bullish fundamental factor for the dollar and a bearish one for U.S. stock indices and gold.

On Thursday, the ECB will make its decision on interest rates. If it also decides on another rate hike while maintaining a hawkish rhetoric regarding the prospects of its monetary policy, then gold prices will come under additional pressure.

Jurij Tolin,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Jurij Tolin
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Market fears nothing

The S&P 500 reached another all-time high, with rotation being the hallmark of the US equity market. Investors are aggressively buying up stocks that underperformed in the first half

Marek Petkovich 10:50 2025-07-11 UTC+2

What to Watch for on July 11th? A Fundamental Overview for Beginners

There are very few macroeconomic publications scheduled for Friday, but the volume is still greater than on any previous day this week. The UK will release GDP and industrial production

Paolo Greco 08:50 2025-07-11 UTC+2

GBP/USD Overview on July 11, 2025

The GBP/USD currency pair failed to consolidate above the moving average on Thursday, so the correction continues for now. Throughout Thursday, the GBP/USD pair was unable to hold above

Paolo Greco 07:15 2025-07-11 UTC+2

EUR/USD Overview on July 11, 2025

The EUR/USD currency pair spent Thursday calmly drifting lower. We continue to wait for the current correction to end and for the uptrend to resume. To be fair, this correction

Paolo Greco 07:08 2025-07-11 UTC+2

XAU/USD. Analysis and Forecast

Gold prices are maintaining positive momentum for the second consecutive day. Ongoing uncertainty surrounding U.S. President Donald Trump's trade policy and its impact on the global economy continues to weigh

Irina Yanina 19:24 2025-07-10 UTC+2

USD/CHF. Analysis and Forecast

Today, the USD/CHF pair retraced part of its decline from a new weekly low recorded during the Asian session and has temporarily paused its downward movement, stopping short

Irina Yanina 12:26 2025-07-10 UTC+2

Market dupes sellers

The split within the Federal Reserve, NVIDIA's successes, and a successful auction of 10-year US Treasury bonds allowed the S&P 500 to ignore the tariff chaos. Donald Trump announced tariffs

Marek Petkovich 12:02 2025-07-10 UTC+2

What to Watch on July 10th: Fundamental Event Overview for Beginners

Macroeconomic Report Analysis: There are very few macroeconomic publications scheduled for Thursday, and none of them are expected to be significant. So what could traders focus on today? The second

Paolo Greco 09:07 2025-07-10 UTC+2

GBP/USD Overview on July 10, 2025

On Wednesday, the GBP/USD currency pair maintained its downward movement, which is corrective in nature and could end at any moment. The price remained below the moving average line

Paolo Greco 07:26 2025-07-10 UTC+2

EUR/USD Overview on July 10, 2025

The EUR/USD currency pair continued to trade very calmly on Wednesday. The pair maintained a slight downward bias, as we've noted in all of our recent articles. However, the current

Paolo Greco 07:16 2025-07-10 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.