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31.08.202217:02 Forex Analysis & Reviews: XAU/USD: Bullish and bearish factors

Exchange Rates 31.08.2022 analysis

The dollar remains positive, while its DXY index remains near the resistance level of 109.00. Earlier this week, DXY broke last month's high at 109.14 and touched a new local high since October 2002 at 109.44.

The tough rhetoric of Federal Reserve Chairman Jerome Powell regarding the prospects for monetary policy of the American central bank gave the dollar a new bullish momentum. During his speech at the Jackson Hole symposium last Friday, he reaffirmed that the Fed's priority goal is to fight high inflation, and "the Fed should continue like this until the job is done." At the same time, "restoring price stability will take some time and will require the decisive use of central bank instruments." In other words, the tight cycle of Fed monetary policy tightening will continue for now, perhaps even at the same pace. Thus, the trend of further strengthening of the dollar remains.

Meanwhile, the price of gold continues to decline amid a strengthening dollar. Today, XAU/USD hit a new 6-week low at 1.1710, falling towards key support levels at 1700.00, 1690.00, 1682.00.

Exchange Rates 31.08.2022 analysis

As you know, gold quotes are extremely sensitive to changes in the monetary policy of the world's leading central banks and, especially, the Fed. However, the other major world central banks (BoE, RBA, RBNZ) are also on the path of tightening their monetary policies, and the ECB will soon join them. Despite the high risks of a recession in the economy, the fight against inflation remains a key issue for them.

Gold does not bring investment income but is in active demand during geopolitical and economic uncertainty, and a protective asset in the face of rising inflation. Now is just such a moment.

However, it seems that it is losing its role as a protective asset to the dollar, and in the event of a breakdown of the zone of long-term support levels of 1700.00, 1690.00, 1682.00, the long-term bullish trend of gold and the XAU/USD pair may be in jeopardy. It is hard to believe so far, but the fundamental and technical picture is still in favor of just such a scenario.

On Friday, the publication of key macroeconomic statistics for the United States is expected. At 12:30 (GMT), data on the US labor market for August will be published. The positive momentum of recovery is expected to continue, which allows Fed officials to continue to fight inflation at an accelerated pace, which is bullish for the dollar and bearish for gold prices.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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