- A combination of supporting factors pushes the price of Gold higher for the second consecutive day.
- USD remains depressed amid Fed rate cut bets in September, supporting metal.
- Geopolitical risks further benefit the safe-haven XAU/USD, although bulls seem reluctant.
Gold (XAU/USD) price once again showed some resilience below the 50-day simple moving average (SMA) on Friday and staged a modest recovery from the vicinity of a more than two-week low touched the previous day. The move higher followed the release of the US Personal Consumption Expenditure (PCE) Price Index, which showed that inflation rose modestly in June and raised bets for an imminent start of the Federal Reserve (Fed) rate-cutting cycle. US Treasury bond yields fell following the inflation data, weakening the US Dollar (USD) and benefiting the non-yielding yellow metal.
Apart from this, lingering concerns over geopolitical risks arising from ongoing conflicts in the Middle East help the safe-haven gold price gain traction during Monday’s Asian session. That said, the risk-on momentum – as reflected in the upbeat global equity markets – could act as a headwind for the safe-haven precious metal. Traders might also prefer to move on hold and wait for the outcome of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday before committing to the commodity’s next directional move.
Daily Market Wrap: Gold Price Gets Support From Fed Rate Cut Bets, Geopolitical Risks
- Subdued US inflation data reaffirmed market expectations that the Federal Reserve (Fed) will cut interest rates in September and drove flows into non-yielding gold prices higher on Friday.
- The U.S. Department of Commerce’s Bureau of Economic Analysis reported that the Personal Consumption Expenditure (PCE) Price Index rose 0.1% last month after remaining unchanged in May.
- Over the past 12 months through June, the PCE Price Index edged up 2.5% from 2.6% in the previous month, in line with consensus estimates and adding to signs of easing price pressures.
- The core PCE Price Index, which excludes volatile food and energy prices and is the Fed’s preferred gauge of inflation, showed a monthly increase of 0.2% in June and the annual rate held steady at 2.6%.
- The improving inflation outlook dragged the benchmark 10-year bond yield to a near two-week low on Monday, further weakening the US dollar and benefiting XAU/USD.
- The attack on the Golan Heights on Saturday has raised concerns of an all-out war between Israeli forces and Hezbollah in Lebanon, further supporting demand for the safe-haven precious metal.
- A strong rally in global equity markets could keep a lid on any runaway rally in the commodity ahead of the crucial two-day FOMC monetary policy meeting, which begins on Tuesday.
- Investors this week will also be taking cues from the Bank of Japan’s decision on Wednesday, which will be followed by the Bank of England meeting on Thursday and key US macroeconomic releases.
Technical Analysis: Gold price struggles to build on intraday strength beyond $2,400 level
From a technical perspective, the recent repeated failures to find acceptance below the 50-day SMA and the subsequent bounce warrant some caution for bearish traders amid neutral oscillators on the daily chart. The bulls, however, are struggling to capitalize on the Asian session rally to levels beyond the $2,400 level, making it prudent to wait for strong follow-through buying before confirming that the gold price has bottomed out.
Meanwhile, the push above the $2,400 round figure is likely to face some resistance near the $2,412 area ahead of last week’s high, around the $2,432 region. A sustained strength beyond the latter will suggest that the correction from the all-time high touched earlier this month has come to an end and set the stage for further gains. Gold price could then rally to the intermediate resistance of $2,469-$2,470 and challenge the record high, around the $2,483-$2,484 zone.
On the other hand, weakness below the $2,380 level could continue to attract buyers near the 50-day SMA, currently situated near the $2,360-$2,359 region, and remain capped. A sustained break through the aforementioned support, however, will be seen as a fresh trigger for bearish traders and drag the gold price towards the next relevant support near the $2,325 area. The downward trajectory could extend further towards testing the $2,300 round figure for the first time since late June.
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.
