- Gold price regains some positive traction following overnight US CPI decline.
- Persistent geopolitical risks and bets on Fed rate cuts continue to support the metal.
- A modest USD rebound and a positive risk tone could act as a headwind for XAU/USD.
Gold (XAU/USD) saw an intraday turnaround from the proximity of the record peak and fell over 1.5% intraday following the release of US consumer inflation figures on Wednesday. The closely watched US CPI indicated that inflation is on a downward trend and reaffirmed bets for an imminent start of the Federal Reserve (Fed) rate cut cycle in September. However, investors reduced their expectations for more aggressive policy easing, leading to a modest rebound in the US Dollar (USD) from the proximity of a multi-month low touched last week and weighing on the non-yielding yellow metal.
That said, the risk of an expanding conflict in the Middle East helped limit the safe-haven gold price downside and find some support near the $2,438 area. The precious metal recovered around $10 from the daily low and gained some traction during Thursday’s Asian session, although increased USD buying capped any significant appreciable move. Nonetheless, XAU/USD, for now, seems to have snapped a two-day losing streak as traders await US retail sales figures and other important US macroeconomic data for a fresh boost later during Thursday’s North American session.
Daily Market Wrap: Gold price attracts some safe-haven flows amid dovish Fed expectations
- Data released on Wednesday showed U.S. consumer prices rebounded as expected in July and dashed hopes for a further interest rate cut by the Federal Reserve in September.
- In fact, the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) reported that the overall U.S. CPI rose moderately, by 0.2% in July after falling by 0.1% the previous month.
- The annual increase in the CPI, however, slowed somewhat and fell below 3% for the first time in nearly 3 1/2 years, suggesting continued progress toward the Fed’s inflation goals.
- Core CPI, which excludes volatile food and energy prices, rose 0.2% in the reported month and eased to 3.2% in the 12 months through July from 3.3% in June.
- According to the CME Group’s FedWatch tool, investors now see a 36% chance of a 50 basis point rate cut at the next FOMC meeting versus 50% before the US CPI data.
- This triggered a late rally in US Treasury yields, helping the US Dollar attract some buyers at lower levels and weighing on the non-yielding yellow metal.
- The US Dollar Index (DXY) gains some follow-through traction on Thursday and acts as a headwind for the commodity, although elevated geopolitical tensions continue to offer some support.
- Mediators hope to begin ceasefire negotiations between Israel and Hamas on Thursday amid the risk of an imminent Iranian attack on Israel in the coming days.
- Traders are now looking to the US economic docket, including retail sales, weekly initial jobless claims and regional manufacturing indices, for short-term opportunities.
Technical Outlook: Gold price bulls have the upper hand as long as they hold above the weekly low around $2,424
From a technical perspective, the overnight low, around the $2,438 region, now seems to protect the immediate downside before the $2,424 area, or the weekly low touched on Monday. Some follow-through selling could make the gold price vulnerable to weaken further below the $2,400 level and test the 50-day simple moving average (SMA) pivot support, currently situated near the $2,380 zone. A convincing break below the latter could expose the 100-day SMA, near the $2,360 region, which if broken decisively will be seen as a fresh trigger for the bears and pave the way for deeper losses.
Meanwhile, oscillators on the daily chart remain in positive territory and support prospects for further gains in the near term. That said, any further move higher is more likely to face some resistance near the $2,471-$2,472 region before the $2,483-$2,484 area or the all-time high touched in July. A subsequent surge beyond the $2,500 psychological level will confirm a breakout through a broader one-month trading range and set the stage for a further appreciable move in the near term.
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.
