- Gold price holds at key support level, poised for third consecutive weekly gain on Fed rate cut expectations.
- US PPI rises above estimates; University of Michigan consumer sentiment falls; inflation expectations moderate.
- CME FedWatch tool indicates 94% probability of a rate cut in September; US Dollar Index falls more than 0.40% to 104.09.
Gold prices held above $2,400 on Friday after hitting a daily low of $2,391. The yellow metal is set to extend its gains for a third straight week on speculation that the Federal Reserve (Fed) could begin its easing cycle in September. Data from the US Labor Department showed that factory prices rose above estimates, though failed to prop up the dollar, a tailwind for the precious metal.
XAU/USD is trading at $2,415, virtually unchanged. The US Bureau of Labor Statistics revealed on Friday that the Producer Price Index (PPI) rose modestly in June, above analysts’ estimates. The preliminary July reading of the University of Michigan Consumer Sentiment deteriorated, but inflation expectations have moderated.
According to the CME FedWatch tool, traders are pricing in a 94% probability that the Fed could cut rates by a quarter of a percentage point in September.
US Treasury bond yields are therefore falling, a tailwind for the non-yielding metal, which benefits from low yields. The US 10-year Treasury note coupon is yielding 4.19%, two basis points below its opening price.
Sources cited by Barron’s stated, “Inflation is coming down, but it’s not going away. Gold and gold miners are attractive hedges against inflation.”
Meanwhile, Fed officials have remained cautious about changes in monetary policy. Chicago Fed President Goolsbee noted that recent inflation data is “favorable” and could shorten the Fed’s path to its inflation targets.
St. Louis Fed President Alberto Musalem said the current interest rate level is appropriate for current conditions and he expects the economy to grow between 1.5% and 2% this year.
Meanwhile, the US Dollar Index (DXY), which tracks the value of the greenback against a basket of six currencies, slumped more than 0.40% to 104.09.
Daily Market Wrap: Gold price remains sideways following US PPI
- The US Producer Price Index (PPI) for June rose 0.2% on a monthly basis, beating the 0.1% expected and higher than the 0% rise in May. The core PPI rose 0.4% on a monthly basis, beating the 0.2% forecast.
- On an annual basis, the PPI rose from 2.4% to 2.6%, beating the forecast of 2.3%. Core inflation rose to 3% from 2.6%.
- The University of Michigan Consumer Sentiment fell from 68.2 in June to 66.0 in July. One-year inflation expectations were as expected at 2.9%, down from 3%.
- The US Dollar Index (DXY), which tracks the value of a basket of six currencies against the US dollar, fell more than 0.30% to 104.12.
- According to the CME FedWatch tool, the probability of a rate cut in September is 88%, up from 85% on Thursday.
- The December 2024 federal funds rate futures contract implies the Fed will ease policy by 49 basis points (bps) by year-end, up from 39 a day earlier.
- Gold prices retreated slightly due to the People’s Bank of China’s (PBoC) decision to halt gold purchases in June, as it did in May. At the end of June, China held 72.80 million troy ounces of the precious metal.
Technical Analysis: Gold buyers take a breather, gold price holds above $2,400
Gold price is consolidating above $2,400 for the second consecutive day after decisively breaking the neckline of the head-and-shoulders pattern. Momentum is favouring buyers, although as shown by the flat RSI, they are taking a breather before testing higher prices.
That said, the path of least resistance is to the upside. The first resistance for XAU/USD would be the yearly high of $2,450, before the $2,500 level. Conversely, if gold breaks below the $2,400 figure, the next demand zone will be the July 5 high at $2,392. If cleared, XAU/USD would continue to $2,350.
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.
