Gold Price Reaches 7-Week High...Targets $4,334 as Dollar Falls

▲ Gold/AI-generated image

Gold (XAU/USD) surged to a 7-week high, driven by a weaker dollar and falling Treasury yields. A break above $4,269 would set $4,334 as the next test.

According to FXLeaders on August 6 (local time), gold rose to $4,265, marking its highest level in seven weeks. The U.S. Dollar Index (DXY) fell to a six-week low, and declining Treasury yields reduced the burden of holding non-yielding gold. Demand for safe-haven assets and purchases by central banks worldwide also supported the upward trend.

The likelihood of an additional U.S. interest rate hike in September has fallen to approximately 55%, down 12 percentage points from about 67% two days prior. The Federal Reserve (Fed) kept its benchmark interest rate unchanged at 3.5-3.75% in July, but three policymakers advocated for a 0.25 percentage point increase.

Progress in negotiations between the U.S., Iran, and Oman also alleviated inflation concerns. Expectations of normalized shipping in the Strait of Hormuz pushed oil prices down, bolstering the Fed's outlook for interest rate stability. However, if the U.S. non-farm payrolls report (NFP) shows stronger-than-expected employment and wages, Treasury yields could rebound, putting pressure on gold's upward momentum.

According to the World Gold Council, Q2 gold demand, including over-the-counter transactions, reached 1,269 tons. First-half demand increased by 2% year-on-year to 2,522 tons, amounting to approximately $380 billion by value. Central banks purchased 289 tons in Q2, increasing their purchases by 62% compared to the same period last year, and 45% of surveyed foreign exchange reserve managers indicated plans to increase their gold holdings in the next 12 months.

Technically, after breaking above the upper trendline of a multi-week symmetrical triangle, the upward momentum stalled at the $4,269 resistance level. The Relative Strength Index (RSI) crossed 74, entering the overbought zone. If gold closes above $4,269, the target levels are $4,334 and $4,380. If $4,211 is breached, the next support levels are $4,164 and $4,127.

[Article Key Summary]

-Gold reached a 7-week high of $4,265, propelled by a weaker dollar and falling Treasury yields.

-Central banks' Q2 gold purchases totaled 289 tons, a 62% increase year-on-year.

-A break above $4,269 would open the way to $4,334, but the Relative Strength Index has entered the overbought zone.

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