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Gold price rises modestly after Jerome Powell’s speech

  • Gold prices rise above $2,360 after Jerome Powell’s Senate testimony indicates a cautious approach to rate cuts.
  • The yield on the 10-year US Treasury bond rose to 4.296%, while the DXY gained 0.14%.
  • World Gold Council reports second month of ETF inflows, in contrast to PBoC’s pause in gold purchases.

Gold prices rose during the North American session on Tuesday after Federal Reserve Chairman Jerome Powell appeared before the US Senate Banking Committee and stated that inflation is moving towards the Fed’s 2% target but he is not yet ready to cut borrowing costs. XAU/USD is trading at $2,364, gaining over 0.25%.

The yellow metal recovered slightly amid rising US Treasury bond yields and a firm US Dollar. The US 10-year benchmark note coupon is up one and a half basis points (bps) to 4.296%, while the US Dollar Index (DXY) is holding steady above 105.00, gaining 0.14%.

Fed Chair Jerome Powell said that “elevated inflation is not the only risk we face,” warning that cutting interest rates too little or too soon could put the economy at risk. He added that while raising rates is possible if the data supports it, the most likely direction would be to “start easing policy at the right time.”

Apart from this, the World Gold Council (WGC) revealed that gold exchange-traded funds (ETFs) experienced a second month of inflows in June. The WGC stated that total fund holdings increased by around 18 tonnes to 3,106 tonnes.

This is in contrast to the People’s Bank of China’s (PBoC) decision not to buy gold in June as it did in May. China held 72.80 million troy ounces of the precious metal at the end of June.

The US economic calendar for the week will include Powell’s speech in the US House of Representatives on Wednesday, followed by the release of consumer and producer inflation figures. Initial jobless claims and the University of Michigan’s consumer sentiment index will round out the calendar.

Daily Market Drivers Roundup: Gold Price Advances During Jerome Powell’s Speech

  • US CPI is expected to decline from 3.3% to 3.1% YoY in June, while core inflation is projected to remain stable at 3.4% YoY.
  • According to consensus, initial jobless claims for the week ending July 6 are expected to rise to 240,000 from 238,000.
  • July consumer sentiment is expected to improve to 68.5, up from 68.2 in June, according to consensus.
  • Minutes from the June meeting of the Federal Open Market Committee (FOMC) revealed that most participants believe current policy is restrictive, but are open to further rate increases. Policymakers acknowledged that the economy is cooling and could respond to unexpected economic weaknesses.
  • According to data from the CME FedWatch tool, investors are pricing in the chance of a Fed rate cut in September at 70%, up from 73% on Monday.
  • The December 2024 federal funds rate futures contract implies that the Fed will ease policy by 39 basis points (bps) by the end of the year.

Technical Analysis: Gold Price Hovering Around the Neckline of the Head and Shoulders Pattern

Gold price formed a bearish Harami candlestick pattern after breaking the neckline of the Head and Shoulders pattern, which pushed the XAU/USD pair towards the $2,400 level before falling to the current price level.

Buyers are still in charge with the RSI in bullish territory above the neutral 50 line.

Therefore, the first resistance for Gold would be the July 5 high at $2,392, followed by the $2,400 figure. Further upside is expected, with the next resistance at the yearly high of $2,450, before the $2,500 mark.

Conversely, if XAU/USD drops below $2,350, the gold metal could decline to the $2,300 level. If this support fails, the next demand zone would be the May 3 low of $2,277, followed by the March 21 high of $2,222.

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.

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

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