Gold shows weakness ahead of Fed chair Powell's speech

• Recent fluctuations in the gold market have been driven by investor speculation on the Federal Reserve's monetary policy.

• Upcoming speeches by Fed Chair Jerome Powell and the release of FOMC meeting minutes, along with the US Nonfarm Payrolls report, are critical in determining future gold price movements.

• As the seasonal correction period for gold nears completion, a potential bottom in July could signal a strong rally for the latter part of the year.

The gold market has experienced significant fluctuations recently, primarily driven by investor speculation on the Federal Reserve's monetary policy. As the US Dollar gained traction during the Asian session on Tuesday, gold prices further fluctuated within ranges. Additionally, the positive sentiment in equity markets further diverted investment away from the traditionally safe-haven asset, contributing to the decline in gold prices.

Several events are poised to impact the future of gold prices. The market is closely watching the Federal Reserve's next moves, with a significant focus on the possibility of rate cuts in September and December. This anticipation is bolstered by recent economic data showing declining manufacturing activity and lower input prices, which suggest a weakening economy and lower inflation pressures. Geopolitical risks, particularly from China's economic challenges and ongoing political uncertainties globally, are also factors that could provide support to gold prices as investors seek safe-haven assets amid instability.

Moreover, Fed Chair Jerome Powell's upcoming speech and the release of the FOMC meeting minutes are expected to provide critical insights into the Fed's future policy direction, which will heavily influence gold market dynamics. Additionally, the US Nonfarm Payrolls report on Friday will be pivotal in shaping market expectations regarding the Fed's rate cut trajectory. A potential softening in job market data could reinforce the likelihood of a dovish Fed stance, thereby impacting the US Dollar and potentially driving gold prices higher. As traders navigate these developments, gold prices are likely to remain sensitive to fluctuations in the US Dollar and shifts in economic indicators.

The chart below shows that gold has been fluctuating within ranges and waiting for the next direction. As discussed previously, the choppy and overlapping price action typically leads to a downside. Since the seasonal time for correction in gold is about to complete, there is a possibility of a bottom in July, which could indicate a strong rally for the latter part of the year. Moreover, the consolidations on the daily and weekly charts indicate a solid bullish formation, suggesting a significant price rally soon.

Bottom line

In conclusion, the gold market has been notably influenced by investor speculation on the Federal Reserve's monetary policy, with recent fluctuations driven by the strengthening US Dollar and positive equity market sentiment. As the market anticipates potential rate cuts in September and December, bolstered by economic data suggesting a weakening economy and lower inflation pressures, key upcoming events such as Fed Chair Jerome Powell's speech and the release of FOMC meeting minutes will be crucial in shaping future gold price movements. Additionally, with the seasonal correction period for gold nearing completion, there is potential for a bottom in July, which could signal a robust rally in the latter part of the year, further supported by bullish formations observed in weekly chart consolidations.

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