- Gold prices edge lower, reversing some of the positive move inspired by Thursday’s softer US CPI.
- A spike in US bond yields revives demand for the USD and puts pressure on XAU/USD.
- Mounting bets on a Fed rate cut in September should act as a tailwind for the metal and help limit losses.
Gold (XAU/USD) price rose to the $2,424-$2,425 zone on Thursday, its highest level since May 22, in reaction to another subdued US inflation report, which raised expectations that the Federal Reserve (Fed) will cut interest rates in September. That said, a modest pick-up in US Treasury bond yields helps revive demand for the US Dollar (USD) and prompts some selling around the non-yielding yellow metal during Friday’s Asian session. Apart from this, the underlying bullish sentiment around equity markets turns out to be another factor driving money flows away from the safe-haven precious metal.
Gold price, for now, seems to have snapped a three-day winning streak, although any meaningful decline still seems elusive amid growing acceptance that the Fed will begin its rate-cutting cycle sooner rather than later. Moreover, geopolitical risks, political uncertainty in the US and Europe, along with concerns over a global economic slowdown, should continue to act as a tailwind for XAU/USD. Traders now look forward to the release of the US Producer Price Index (PPI) and the University of Michigan Consumer Sentiment survey for fresh impetus later during the North American session.
Daily Market Wrap: Gold Price Could Continue to Receive Support From Fed Rate Cut Expectations
- Gold prices breached the $2,400 mark on Thursday following the release of weaker-than-expected US consumer inflation figures, raising bets for a September interest rate cut by the Federal Reserve.
- The U.S. Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index (CPI) declined in June for the first time in more than four years, with the annual rate slowing to 3% from 3.3% in May.
- Meanwhile, core CPI, which excludes volatile food and energy prices, rose 0.1% in the reported month and increased 3.3% year-on-year, also below consensus estimates and the 3.4% increase recorded in May.
- Investors were quick to react and are now pricing in more than 90% of the chance that the Fed will cut borrowing costs at its September policy meeting, according to the CME Group’s FedWatch tool.
- Moreover, the December 2024 federal funds rate futures contract implies that the US central bank will cut policy rates by 49 basis points (bps) by the end of the year, up from 39 bps yesterday.
- San Francisco Fed President Mary Daly acknowledged the improved inflation numbers and said the economy appears to be on a path where one or two rate cuts this year would be more or less appropriate.
- Separately, St. Louis Fed President Alberto Musalem noted that recession risks remain low and the disinflation process is underway, although policymakers would like to see more progress.
- Meanwhile, the yield on the 10-year US Treasury bond fell to its lowest level since March, dragging the US dollar to a three-month low and providing a strong boost to the yellow metal.
- This overshadowed the better-than-expected release of US initial jobless claims, which fell to 222K for the week ending July 6 compared with expectations for a reading of 236K and the previous 239K.
- The XAU/USD pair, however, is struggling to capitalize on the strong overnight upside move amid a modest USD rally during the Asian session on Friday, although the fundamental backdrop favors the pair’s bulls.
Technical Analysis: Gold price could aim to retest the all-time high, around $2,450 touched in May
From a technical perspective, the overnight sustained break through the $2,400 mark was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are still far from being in overbought territory. This further validates the short-term positive outlook for the Gold price, suggesting that any significant dip could be seen as a buying opportunity and remain capped.
Some follow-through selling below the $2,388-$2,387 horizontal resistance breakout point, now turned support, could drag the XAU/USD towards the $2,358 region with some intermediate support near the $2,372-$2,371 zone. On the other hand, the overnight high, around the $2,425 region, now seems to act as an immediate hurdle, above which Gold price is more likely to once again aim to challenge the all-time high, around the $2,450 region touched in May.
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.
