- Gold prices continue to struggle to gain significant traction on Wednesday.
- Traders appear reticent, preferring to wait for further clues on the Fed’s rate-cutting path.
- Investors are looking to the FOMC minutes for fresh impetus ahead of Friday’s NFP report.
Gold (XAU/USD) price is struggling to capitalize on the overnight bounce from the $2,319 area and is hovering in a narrow band below the 50-day simple moving average (SMA) during the Asian session on Wednesday. The commodity remains confined in a familiar range held for the past week or so as traders prefer to wait for more clues on the Federal Reserve (Fed) policy path before opening fresh directional bets. Therefore, the focus remains on the release of the FOMC meeting minutes later today, which, along with Friday’s Non-Farm Payrolls (NFP) report, could influence expectations on the Fed’s future policy decisions. This will boost the near-term demand for the US Dollar (USD) and provide a fresh impetus to the under-yielding yellow metal.
Meanwhile, Fed Chair Jerome Powell sounded slightly dovish on Tuesday and reaffirmed bets that the central bank is more likely to start its rate-cutting cycle later this year. This leads to a modest pullback in US Treasury bond yields and keeps USD bulls on the defensive, which is seen as a tailwind for the gold price. Apart from this, concerns over a slowdown in global economic growth, lingering geopolitical tensions, coupled with political uncertainty in the US and Europe, should help limit the safe-haven precious metal’s downside. Meanwhile, the mixed fundamental backdrop makes it prudent to wait for a sustained breakout through a near-term range before positioning for the next directional move in XAU/USD.
Daily Digest Market Movers: Gold Price Awaits More Signals From Fed Before Next Directional Move
- Investors are choosing to wait on the sidelines and look for more clarity on the Federal Reserve’s rate cut path, leading to range-bound price action around the price of gold for the fourth consecutive day on Wednesday.
- Fed Chairman Jerome Powell expressed satisfaction with progress on inflation but said he wants to be more confident it is sustainably moving lower toward 2% before beginning the process of cutting rates.
- Markets are now pricing in a higher probability of the Fed cutting borrowing costs in September and the possibility of another rate cut in December, triggering a pullback in US Treasury yields.
- The 10-year US government bond yield retreated further from a one-month high hit on Monday, keeping US dollar bulls on the defensive and acting as a tailwind for the commodity.
- That overshadowed the Job Openings and Labor Turnover Data, or JOLTS, report, which showed U.S. job openings rose to 8.140 million on the last day of May from April’s downwardly revised figure of 7.092 million.
- Expectations that a Trump presidency would lead to higher tariffs, higher government borrowing and be more inflationary than a Biden administration should limit the downside in US bond yields, and in turn, the USD.
- Investors are now looking to the release of the FOMC meeting minutes, due later today, for a significant fresh boost ahead of the US monthly jobs data, or NFP report, on Friday.
- The US economic calendar on Wednesday also highlights the publication of the ISM Services PMI, which could influence the dynamics of the USD price and contribute to generating short-term trading opportunities around the metal.
Technical Analysis: Gold price could appreciate further once the 50-day SMA barrier is decisively breached
From a technical perspective, the recent range-bound price action points to indecision among traders over the near-term trajectory. Moreover, neutral oscillators on the daily chart further warrant caution before opening any aggressive directional bets. Meanwhile, the 50-day SMA, currently positioned near the $2,340 zone, could continue to act as an immediate hurdle ahead of the late-June high, around the $2,365-$2,370 region. Some follow-up buying should enable the bulls to reclaim the $2,400 round-mark and aim to challenge the all-time high, around the $2,450 zone touched in May.
On the other hand, the $2,319-$2,318 zone seems to have emerged as an immediate strong support ahead of the $2,300 mark and the $2,285 horizontal zone. A convincing break below the latter will be seen as a fresh trigger for bearish traders and make gold price vulnerable to accelerate the decline further towards the 100-day SMA, currently near the $2,258 region. The metal could extend the downward trajectory further towards the $2,225-$2,220 region before finally falling to 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.
The price of Gold 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, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the movements 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.
