- Gold price starts the week on a weak note amid the emergence of some USD buying.
- Expectations that the Fed will cut rates in September should limit USD gains and provide some support.
- Political uncertainty in the US following the attempted assassination of Trump also justifies caution for bears.
Gold (XAU/USD) price is struggling to capitalize on Friday’s nice bounce from the $2,391 area and is starting the new week on a weak note. This marks the second consecutive day of decline and is supported by a modest US Dollar (USD) strength, which tends to undermine demand for the USD-denominated metal. However, the precious metal remains close to its highest level since May 22 touched last Thursday and could continue to receive support from a combination of factors, warranting some caution for aggressive bearish traders.
Softer consumer inflation figures released in the US last week reaffirmed market expectations that the Federal Reserve (Fed) will start cutting interest rates in September and reduce borrowing costs again in December. This could restrain USD bulls from opening aggressive bets and lend some support to the non-yielding Gold price. Moreover, an alleged assassination attempt on former US President Donald Trump fuels political uncertainty and should further help limit any significant downside for the safe-haven XAU/USD.
Daily Market Wrap: Gold price weighed down by stronger USD, Fed rate cut expectations to limit losses
- The US Dollar attracted some buyers on Monday and reversed some of its recent losses to a more than three-month low, which in turn put some pressure on the price of Gold for the second consecutive day.
- Data released by the US Bureau of Labor Statistics on Friday showed that the Producer Price Index (PPI) for final demand rose 2.6% on an annualized basis in June, above consensus estimates of a reading of 2.3%.
- Adding to this is political uncertainty following a failed assassination attempt on US presidential candidate Donald Trump, which is supporting the dollar, although dovish Federal Reserve expectations could limit gains.
- Current market pricing indicates a more than 90% chance that the Fed will begin its rate-cutting cycle in September and bets were boosted by another US consumer inflation report released last Thursday.
- Moreover, the political situation in the US should largely keep investors’ appetite for riskier assets in check and lend some support to the safe-haven XAU/USD, warranting caution before positioning for further losses.
- Traders now look to the release of the US Empire State Manufacturing Index for near-term opportunities ahead of Fed Chair Jerome Powell’s speech later in the North American session.
Technical Analysis: Gold price bulls have the upper hand, could aim to challenge all-time high touched in May
From a technical perspective, the emergence of some buying at lower levels on Friday reaffirmed strong support near the $2,390-$2,388 resistance breakout point. Moreover, oscillators on the daily chart remain in positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the gold price is to the upside. Therefore, a drop below the $2,400 level could still be seen as a buying opportunity and remain limited.
However, some follow-through selling has the potential to drag the gold price towards the $2,358 region with some intermediate support near the $2,372-$2,371 zone. The ensuing drop could expose the 50-day Simple Moving Average (SMA) support, currently placed near the $2,350 region.
On the upside, last week’s high, around the $2,425 region now seems to act as an immediate hurdle, above which Gold price is most likely to once again aim to challenge the all-time high, around the $2,450 region touched in May. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and will set the stage for an extension of the commodity’s recent upward move seen over the past two weeks or so.
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 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.
