- A combination of supportive factors helps Gold price gain positive traction on Thursday.
- Fears of a US recession and geopolitical risks are weighing on investor sentiment and benefiting the precious metal.
- Dovish Fed expectations and falling US bond yields weaken the USD and provide additional support.
Gold (XAU/USD) price is attracting some buyers during the Asian session on Thursday and for now, it seems to have snapped a four-day losing streak. Market sentiment remains fragile amid concerns over an economic slowdown in China and a possible recession in the US. Adding to this, lingering geopolitical tensions arising from ongoing conflicts in the Middle East are helping to revive demand for the safe-haven precious metal.
Meanwhile, Friday’s weak US jobs report for July raised expectations for larger interest rate cuts by the Federal Reserve (Fed). This, coupled with a further decline in US Treasury bond yields, keeps US Dollar (USD) bulls on the defensive and acts as a tailwind for the non-yielding Gold price. Moreover, the recent bounce from the 50-day Simple Moving Average (SMA) supports prospects for a further appreciating move.
Daily Market Wrap: Gold Price Draws Support From Reviving Safe-Haven Demand And Falling US Bond Yields
- This week’s rally in global equity markets is running out of steam amid lingering concerns about a US recession and is offering some support to the price of safe-haven gold during the Asian session on Thursday.
- There are also fears that the Iranian retaliation strike for the killing of Hamas chief Ismail Haniyeh in Tehran and the subsequent Israeli response could lead to a wider conflict in the Middle East.
- Investors have fully priced in a 25 basis point rate cut by the Federal Reserve in September and have been speculating on the possibility of a 50 basis point cut amid concerns about a slowing US economy.
- Meanwhile, expectations trigger a further decline in US Treasury bond yields and cap the US Dollar’s recent recovery from a multi-month low, further underscoring the yield-less yellow metal.
- Traders now look to the usual US weekly initial jobless claims data for some impetus later today, although attention remains focused on US consumer inflation figures due out next Wednesday.
Technical Analysis: Gold price bulls seem to have the upper hand as long as they hold above the key 50-day SMA support
From a technical perspective, any further positive move beyond the $2,400 level is likely to face some resistance near the $2,410-$2,412 supply zone. A sustained strength beyond it could trigger a short-covering rally and push the gold price towards the intermediate $2,430 hurdle en route towards the next relevant barrier near the $2,448-$2,450 horizontal zone. Some follow-through buying should pave the way for a move towards the retest of the all-time high, near the $2,483-$2,484 zone touched in July. This is closely followed by the $2,500 psychological level, which if breached should set the stage for a further appreciating move in the near term.
On the other hand, Gold price could continue to attract buyers around the 50-day SMA support, currently located near the $2,368 region. The ensuing drop has the potential to drag the XAG/USD to last week’s low, around the $2,353-$2,352 zone, en route towards the $2,344 zone, or the 100-day SMA. Some follow-through selling below the latter will be seen as a fresh trigger for the bears and pave the way for deeper losses. Since the oscillators on the daily chart have just started gaining negative traction, the commodity could then accelerate the decline towards the $2,300 round figure.
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.
