- Gold falls to $2,399, down 1.50%, after hitting a high of $2,447.
- Concerns about China’s economic growth and Trump’s election prospects boost the dollar.
- The US Dollar Index is up to 104.34, 0.18%; US Treasury yields are up, with the 10-year note at 4.233%.
The price of Gold The gold metal is down over 1.50% on Friday and hovers around $2,400 as traders take profits ahead of the weekend. The yellow metal could end the week with losses close to 1% after hitting an all-time high of $2,483 and trading around the $2,300 zone. XAU/USD is trading at $2,399 after hitting a high of $2,447.
Traders’ sentiment is swinging due to several factors. China’s economy is growing less than expected, and a growing rumor that former President Donald Trump could win the Nov. 5 election boosted the dollar, which is set to end the week with gains of more than 0.26%, according to the U.S. Dollar Index (DXY).
On top of that, reports have emerged that US President Joe Biden may drop out of the race as top Democrats said polls following Trump’s assassination attempt show he cannot beat him.
Meanwhile, Federal Reserve policymakers continued to take a slightly dovish stance, but failed to undermine the US dollar. Nevertheless, the International Monetary Fund (IMF) said on Thursday that the Fed should not cut interest rates until the end of 2024.
The US Dollar Index, which tracks the performance of the currency against six other currencies, is up 0.18% at 104.34. US Treasury bond yields are also rising across the yield curve, with the 10-year Treasury note yielding 4.233%, up more than three basis points (bps).
Daily Market Wrap: Gold Price Drops Below $2,400
- Weaker-than-expected US Consumer Price Index (CPI) data pushed gold prices above $2,400 as the increased likelihood of Fed rate cuts led to lower US Treasury bond yields.
- This week’s data featured a mixed reading of retail sales, a slowdown in industrial production and a rise in Americans filing for unemployment benefits, reinforcing the Fed’s rhetoric that its dual mandate has become more balanced.
- The December 2024 federal funds rate futures contract implies the Fed will ease policy by 50 basis points (bps) by the end of the year, up from 50 bps last Friday.
- Investors will focus on speeches from Fed policymakers: New York Fed President John Williams and Atlanta Fed President Raphael Bostic are scheduled to speak during the New York session.
Gold Technical Analysis: XAU/USD drops below $2,400 as buyers stay on the sidelines
Gold prices are experiencing a pullback, signaling that traders continued to book profits after an 8% rally experienced since June 27. Although the Relative Strength Index (RSI) remains bullish, in the short term the momentum favors sellers. The RSI has experienced a vertical decline, although it has not yet breached the neutral line of 50.
Therefore, the first support for XAU/USD would be the July 5 high at $2,392, followed by the psychological 50-day simple moving average (SMA) at $2,357. The next support would be $2,350, followed by the 100-day SMA at $2,312.
Otherwise, if XAU/USD sustains above $2,400 and reclaims $2,450, that could pave the way for a challenge to the all-time high of $2,483 before reaching $2,500.
Gold
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 order 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.
