Gold forecast: Soft US dollar keeping XAU/USD underpinned

• Gold forecast remains bullish amid Fed rate cut expectations
• Political pressure on the Fed fuels dollar weakness
• Technical analysis: $3385, $3400 resistance levels in focus as gold consolidates

 

The yellow precious metal has not been making any major headlines lately. This is partly because we haven’t seen any new record highs or any big sell-offs. Investors have been busy buying the dips in equity markets instead, and selling the rallies in the dollar. Caught between these two factors, gold has simply been consolidating, but with a still-bullish bias within this holding pattern. The metal closed last week on the front foot after Fed Chair Jerome Powell hinted that a September rate cut is increasingly likely. It has extended its gains slightly this week, even as it remains trapped in a broad consolidation pattern. Political uncertainty in France and the US has given gold a bit of a lift. This week, it looks like the bullish gold forecast rests largely on the dollar’s direction. With Powell signalling openness to easing and US politics now spilling into Fed independence, the greenback’s outlook looks more fragile. A weaker dollar continues to offer a constructive backdrop for gold for now even as equities also remain supported.

 

Dollar undermined by Fed independence concerns

 

The dollar came under pressure in Asian trade overnight before turning more mixed during the European house, after President Trump announced the removal of Fed Governor Lisa Cook over alleged irregularities in mortgage applications. Cook has challenged his authority to dismiss her, setting the stage for a legal battle. This raises an unusual question: will the Fed board – and the rate-setting FOMC – operate one member down until the courts decide?

 

With Adriana Kugler having stepped down and Stephen Miran stepping in, the Fed’s board is already shifting towards Trump’s influence. This trend risks undermining the perception of Fed independence, a development that could weigh further on the dollar. For the price of gold, this narrative is highly supportive: political interference in central banks tends to spark demand for safe havens.

 

Key US data to watch this week

 

Beyond the political drama, the week ahead is loaded with US data and Fed commentary:

 

• Tuesday: CB Consumer Confidence 97.4 vs. 96.4 expected (marginally negative for gold)
• Thursday: Q2 GDP revision & Fed’s Christopher Waller speech
• Friday: Core PCE inflation (expected at +0.3% m/m)

 

The most market-sensitive event may well be Waller’s speech. Seen as a leading candidate to replace Powell as Chair next year, he voted for a July cut and could lean even more dovish following recent soft employment data. Any sign of dovish pivot strengthens the case for further dollar weakness and, by extension, reinforces the bullish gold forecast.

 

Technical gold forecast: key levels to watch

 

 

From a technical point of view, gold has been consolidating for several weeks, winding up inside a wide range. The bulls may be frustrated by the lack of any further follow-through despite the renewed dollar weakness. But technically this type of price action often precedes a break out in the prevailing direction. Still, it is better to wait for more confirmation. For me, that would be in the form of a daily close above the bearish trend line that has been in place since gold topped in April. If this happens and ideally, we hold above $3,400 level, then this could pave the way for a potential continuation to re-test April’s ATH of $3,500 level.  Interim resistance comes in at $3,385.

 

On the downside, $3,350 is now the first level of support to watch, below which there is not much further support seen until $3,300, and then the June low of 3,247 will come into focus next.

 

Overall, the gold forecast stays mildly bullish as political risk and Fed pressure weigh on the dollar. With a slightly packed US data calendar and heightened speculation around Fed leadership, there may well be some volatility ahead.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R