XAU/USD reverses near $1,840 despite higher odds of a hawkish July

  • The price of gold recouped its opening losses and recovered $1,840.00.
  • Investors should prepare for a longer period to bring price stability.
  • The precious metal remained weak after failing to hold above the 61.8% Fibo retracement.

The price of gold (XAU/USD) rebounded strongly after slipping below the potential cushion of $1,840.00. On a broader note, the precious metal is eyeing further downside as the Federal Reserve (Fed) is expected to announce a consecutive 75 basis point (bp) rate hike in its July monetary policy. The precious metal showed selling pressure on the open and a follow-up selloff is very likely after sliding below Friday’s low at $1,833.90.

Comments from Fed policymakers on pricing pressures and whatever it takes to bring price stability will have a major impact on gold prices for an extended period. Cleveland Fed Bank President Loretta Mester, in her interview with CBS News on Sunday, said pricing pressures would not be reduced overnight. It will take a period of two years but will return to its neutral state.

Meanwhile, the US Dollar Index (DXY) is facing barricades around 104.80. The DXY rally saw signals of exhaustion last week after hitting a multi-year high of 105.79. A correction after posting a multi-year high of 105.79 is followed by a slight reversal, however, volatility is expected to remain top of the PMI numbers. The US Composite PMI is seen a bit higher at 53.7 versus the previous print of 53.6.

Gold technical analysis

On an hourly timescale, gold prices have seen a sharp drop after failing to hold a Fibo retracement above 61.8% (which is placed from the June 12 high at $1,879.26 to the June 14 at $1,805.11) at $1,851.09. The 20 and 50 period exponential moving averages (EMA) at $1,841.54 and $1,839.76 respectively are likely to show a bearish cross, which will strengthen the gold bears. Also, the Relative Strength Index (RSI) (14) is hovering between 40.00 and 60.00 and could slip below 40.00 which will trigger a new sell leg.

Gold hourly chart