- Gold prices rose for a third consecutive day on Thursday, although there was no bullish conviction.
- Fed rate cut expectations keep USD bulls on the defensive and continue to offer some support.
- Risk-on sentiment caps gains as investors look forward to the release of the US CPI report.
Gold (XAU/USD) price is attracting some buyers for the third consecutive day on Thursday, although it lacks follow-through and trades below the weekly high during the Asian session. Traders now seem reluctant and prefer to wait for the release of the latest United States (US) consumer inflation figures before positioning for a firm near-term direction. The key US CPI report is expected to provide further clues regarding interest rate cuts by the Federal Reserve (Fed), which, in turn, should boost demand for the US Dollar (USD) and provide a significant boost to the yieldless yellow metal.
Looking ahead to key data risk, Fed Chair Jerome Powell’s comments reaffirmed market expectations that the central bank will cut borrowing costs in September and again in December. This keeps USD bulls on the defensive and continues to act as a tailwind for the Gold price. Apart from this, sustained central bank buying, macroeconomic uncertainties, and geopolitical risks are lending support to XAU/USD. That said, the prevailing risk-on environment is restraining bullish traders from placing fresh bets and limiting any further gains for the safe-haven precious metal.
Daily Market Wrap: Gold price continues to receive support from Fed dovishness hopes
- Firm acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September and reduce borrowing costs again in December continues to weaken the US Dollar, lending some support to the price of Gold.
- Expectations were raised by comments from Fed Chairman Jerome Powell saying the U.S. remains on a path back to stable prices and the central bank will consider neutral rates later in 2024 once inflation makes more progress.
- Powell acknowledged some cooling in the US economy, although he said he still sees a soft landing, increasing investor appetite for riskier assets, which in turn is seen limiting upside for the safe-haven XAU/USD.
- Powell also reiterated that the Fed remains committed to its 2% inflation target, making the release of the latest US consumer inflation all the more relevant and holding traders back from placing further bullish bets on the metal.
- The headline CPI is estimated to have increased by 0.1% in June, with the annual rate slowing from 3.3% to 3.1%, while the core CPI (excluding food and energy prices) is expected to remain persistent and come in at an annual rate of 3.4%.
- The crucial inflation data will set the stage for the Fed’s rate cut path, which, in turn, should influence USD price dynamics and help determine the next directional move of the non-yielding yellow metal.
Technical Analysis: Gold price could aim to reclaim the $2,400 mark and retest the all-time high
From a technical perspective, last week’s sustained breakout through the 50-day simple moving average (SMA) and a subsequent move beyond the $2,365 supply zone was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the gold price is to the upside. This, in turn, supports prospects for a continuation strength towards reclaiming the $2,400 mark with some intermediate hurdle near the intraday high, around the $2,386-$2,387 zone and the $2,393 area, above an over one-month high touched last week.
On the downside, any corrective decline is likely to find some support near the $2,360-$2,358 region ahead of the 50-day SMA, currently positioned near the $2,345 area. A convincing break below the latter has the potential to drag the gold price to the $2,319-$2,318 support en route to the $2,300 mark and the $2,285 horizontal zone. The latter now coincides with the 100-day SMA, which, if broken decisively, could shift the short-term bias in favor of bearish traders. XAU/USD could then slide to the intermediate support of $2,258 before dropping to the $2,225-$2,220 zone and the $2,200 round mark.
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.
