- The price of Gold enters a bearish consolidation phase near the multi-month low reached on Wednesday.
- The prevailing risk-off environment is lending some support to the safe-haven XAU/USD.
- The bullish trend of the USD and the high yields of US Treasury bonds should stop any recovery attempt in the yellow metal.
The price of Gold (XAU/USD) enters a bearish consolidation phase on Thursday and oscillates within a tight range near its lowest level in more than six months touched the previous day. The prevailing risk-off environment, amid concerns over the weakened Chinese real estate sector and the impending US government shutdown, turns out to be a key factor lending some support to the safe-haven precious metal. Furthermore, the decline in US Treasury yields prevents dollar bulls from opening aggressive positions, especially after the recent rise to the highest level since November 2022, lending some support to the XAU/ USD.
However, the price of Gold continues to fail to recover significantly due to growing expectations of a tightening of monetary policy by the Federal Reserve (Fed), which should act as a tailwind for the USD and the yields of the US bonds. Additionally, investors would prefer to stay on the sidelines ahead of Friday’s release of the US core Personal Consumption Expenditure (PCE) Price Index, which will provide fresh clues on the Fed’s future rate hike path and give fresh directional impetus. to the yellow metal, which does not generate returns. Meanwhile, final US Q2 GDP and initial weekly jobless claims will be released on Thursday, which could influence the dollar during the American session. Aside from this, the broader risk sentiment could help produce short-term opportunities around XAU/USD.
Daily summary of market drivers: The price of Gold consolidates its recent losses at lows in more than six months
- The price of Gold recorded its biggest daily drop in two months amid a stronger Dollar and rising US bond yields.
- Investors remain concerned about the Chinese real estate sector and headwinds from rapidly rising borrowing costs.
- Republican Speaker of the US House of Representatives Kevin McCarthy on Wednesday rejected a stopgap funding bill advancing in the Senate.
- This brings the US government closer to its fourth partial shutdown in a decade and takes its toll on risk sentiment.
- Comments from Neel Kashkari, president of the Minneapolis Fed, have raised expectations of a new rate hike by the end of the year.
- Better-than-expected US durable goods orders data ensures the Fed will keep interest rates higher for longer.
- Thursday’s US economic agenda includes the publication of the final GDP for the second quarter and the usual initial weekly claims for unemployment benefits.
- The US core PCE price index, due to be released on Friday, remains in investors’ focus for clues about the Fed’s future interest rate hike path.
Technical Analysis: Gold price finds some support amid oversold conditions; remains vulnerable.
From a technical perspective, the Relative Strength Index (RSI) on the daily chart has just started drifting into the oversold zone, which helps limit the decline in the price of Gold. On the other hand, the bearish trend of the XAU /USD and the lack of buying interest suggest that the path of least resistance for XAU/USD is to the downside. However, it would be prudent to wait for a short-term consolidation or modest rebound before positioning for a further downward move. However,
Risk Sentiment FAQ
What do the terms “risk-on” and “risk-off” mean when referring to sentiment in financial markets?
In the world of financial jargon, the two terms “risk appetite (risk-on)” and “risk aversion (risk-off)” refer to the level of risk that investors are willing to bear during the investment period. reference. In a “risk-on” market, investors are optimistic about the future and are more willing to buy risky assets. In a “risk-off” market, investors begin to “play it safe” because they are worried for the future and, therefore, buy less risky assets that are more certain to provide a return, even if it is relatively modest.
What are the key assets to follow to understand risk sentiment dynamics?
Typically, during periods of “risk appetite”, stock markets rise, and most commodities – except gold – also appreciate as they benefit from positive growth prospects. The currencies of countries that are large exporters of raw materials strengthen due to increased demand, and cryptocurrencies rise. In a “risk-off” market, Bonds – especially major government bonds – rise, Gold shines and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar benefit.
Which currencies strengthen when sentiment is “risk-on”?
The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD) and minor currencies such as the Ruble (RUB) and the South African Rand (ZAR) tend to rise in markets where there is “appetite for risk.” This is because the economies of these currencies rely heavily on commodity exports for their growth, and these tend to rise in price during periods of “risk appetite.” This is because investors anticipate higher demand for raw materials in the future due to increased economic activity.
Which currencies strengthen when sentiment is “risk averse”?
The major currencies that tend to rise during periods of “risk aversion” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The Dollar, because it is the world’s reserve currency and because in times of crisis investors buy US public debt, which is considered safe because it is unlikely that the world’s largest economy will go into default. The Yen, due to the increase in demand for Japanese government bonds, since a large proportion is in the hands of domestic investors who are unlikely to get rid of them, even in a crisis. The Swiss franc, because strict Swiss banking legislation offers investors greater capital protection.
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.
