- Gold prices continue to receive support from bets on a 50bp Fed rate cut in September.
- Falling US bond yields and a softer USD also act as a tailwind for the non-yielding metal.
- Bulls, however, seem reluctant and are awaiting the release of the US NFP report on Friday.
Gold price (XAU/USD) is struggling to capitalize on the overnight bounce from the $2,472-$2,471 zone or a near two-week low and is hovering in a narrow trading band during the Asian session on Thursday. The fall, however, remains cushioned amid rising bets for a larger interest rate cut by the Federal Reserve (Fed), reinforced by a US labor market report showing that job openings fell to a three-and-a-half-year low in July. This adds to Tuesday’s US manufacturing data and heightens concerns over the health of the economy, dampening investors’ appetite for riskier assets and should act as an additional tailwind for the safe-haven precious metal.
Despite the aforementioned supportive fundamental backdrop, traders seem reluctant to place aggressive bullish bets on the gold price ahead of the crucial monthly US employment data, popularly known as the Non-Farm Payrolls (NFP) report on Friday. Meanwhile, the US economic docket on Thursday, which includes the release of the ADP private sector employment report and the usual weekly jobless claims, will be watched for short-term trading opportunities. Nevertheless, expectations of an imminent start of the Fed policy easing cycle could continue to lend support to the XAU/USD and support prospects for the emergence of buying at lower levels.
Daily Market Wrap: Gold price supported by dovish Fed-inspired decline in US bond yields and USD
- The Job Openings and Labor Turnover Survey (JOLTS) released by the U.S. Bureau of Labor Statistics showed that job openings fell to 7.673 million in July, their lowest level since January 2021.
- Adding to this, the June reading was revised downward to show 7.91 billion unfilled jobs versus the previously reported 8.184 million, further pointing to a weakening labor market.
- Additionally, the Federal Reserve’s Beige Book found that nine of the 12 regional districts reported flat or declining economic activity in August, compared with five that reported weak conditions in mid-July.
- Meanwhile, Atlanta Federal Reserve President Raphael Bostic said price pressures are easing rapidly and the U.S. central bank should not maintain a tight policy stance for long.
- San Francisco Fed President Mary Daly said the central bank needs to cut rates to keep the labor market healthy, but it’s now up to incoming data to determine by how much.
- According to the CME Group’s FedWatch tool, markets are pricing in about a 45% chance that the Fed will cut borrowing costs by 50 basis points at its next policy meeting on Sept. 17-18.
- The dovish outlook drags the rate-sensitive two-year U.S. government bond yield to its lowest level since May 2023 and the 10-year U.S. Treasury bond yield to its lowest level since July 2023.
- This keeps US Dollar bulls on the defensive and turns out to be a key factor acting as a tailwind for the non-yielding gold price amid a generally softer tone around global equity markets.
- Traders are now looking to the release of the ADP report on US private sector employment and weekly initial jobless claims on Thursday for some impetus ahead of the Nonfarm Payrolls report on Friday.
Technical Outlook: Gold bulls may wait for a move beyond the $2,524-$2,525 supply zone before opening fresh positions
From a technical perspective, any subsequent strength beyond the psychological $2,500 mark is likely to face some resistance near the $2,524-$2,425 supply zone ahead of the all-time high, around the $2,531-$2,532 zone touched last month. Some follow-through buying will be seen as a fresh trigger for the bulls and set the stage for the resumption of the recent well-established uptrend amid positive oscillators on the daily chart.
On the other hand, the horizontal zone of $2,471-$2,470 seems to have emerged as an immediate strong support, below which gold price could slide towards the 50-day simple moving average (SMA), currently located near the $2,435 region. A convincing break below the latter could trigger some technical selling and expose the 100-day SMA, around the $2,386 zone, with some intermediate support near the $2,400 round figure.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
