Gold price has been in a downward trend in the past few months. The XAU/USD price has dropped by more than 20% from its highest point this year even as inflation has surged to the highest point in over 4 decades. Other metals like platinum, palladium, and silver have also declined as their correlation with stocks intensify.
Has the US dollar index (DXY) peaked?
Gold price has dropped sharply this year because of the incredibly strong US dollar. Historically, the two tend to have an inverse correlation with each other. Indeed, while gold has dropped by more than 20% since March, the US dollar index (DXY) has risen by over 20% this year.
Gold has crashed because of the Federal Reserve, which has embraced an extremely hawkish monetary policy. In its response to inflation, the bank has hiked interest rates by 300 basis points and analysts expect that more rates are coming. Precisely, they expect another 75 basis point rate hike in November and 50 basis points in December.
The next key catalyst for gold price and the US dollar index will be signs of a Fed pivot. In a recent article, the WSJ said that it was expecting the Fed to hike by 0.75% in November and then debate on slowing hikes. Some Fed officials are worried that the bank could be doing too much, too soon. A Fed pivot will likely be good for gold price in the near term. In an analysis on Monday, Jim Cramer said that the US dollar index was peaking.
Gold price forecast
The daily chart shows that gold prices have been in a strong bearish trend in the past few months. As it dropped, gold managed to drop below the key support levels at $1,725 and $1,682. These were the lowest levels on September 29 and July 20, respectively. Gold has also moved below the 25-day and 50-day moving averages and formed a descending channel.
Therefore, the XAU/USD outlook is still bearish as long as it is below the 50-day moving average and the important resistance point at $1,725.
