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July 28, 2021

XAU/USD Deep Dive: Powell Reassures Dovishness

Bart Kurek

We're still waiting for the market to complete the long-term bullish flag pattern on Gold, which has been built up since the start of March 2020. We've had the initial bullish run which pushed price towards all-time highs in September, and ever since we've been making a descending channel, and now waiting on a clear bull run once more.

Price is currently just above the channel's top after recently hitting and reversing off the bullish order block at around 1750. We're now waiting on some sort of catalyst to push price above the consolidation phase and higher towards the liquidity void at around 1900. Once we see this happen, we'll look for further signs of a potential break past all time highs.

1795 is a key horizontal level to look out for in the short-term, as we can see that over the past month, price has been indecisive around it. Currently, it's acting as strong support and we're just waiting on the consolidation phase to finish, until we can see another bullish run on Gold.

Looking at retail sentiment, Gold traders are primarily long on this pair, however, it's still quite mixed, as I consider 70%+ as a clear dominant winner. Looking at Gold long-term, there is a belief that central banks and the corrupted financial system created more paper gold claims than there is bullion to satisfy them. In other words, there is not enough gold to back all the paper claims on the yellow metal. When people finally realise what's going and the paper gold market collapses, the price of gold will skyrocket.

On Wednesday the 28th of July we had the FOMC Statement and Press Conference, where the FOMC left rates unchanged. The Fed now acknowledges that the "economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings" but the Fed does not appear to think that the ‘substantial further progress’ threshold has been met, noting that “the sectors most adversely affected by the pandemic have shown improvement but have not fully recovered".

There was definitely a more hawkish tone than expected on making progress towards their goals for tapering. The Fed is awaiting strong employment numbers before tapering. This suggests they're not too fussed with inflation currently, and instead, employment is now their primary concern.

Once we see better employment figures in the coming months, that is when the Fed will consider tapering. This dovish language we saw today is the reason we saw the USD sell off.

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