- Gold weakens as the commercial agreement between the EU and the US limits the profits.
- The US dollar is strengthened before the perspectives of agreements before the FOMC meeting on Wednesday.
- Xau/USD approaches the support of the previous triangle with the ingot above $ 3,300.
Gold is being negotiated in a narrow range on Monday, since economic data, decreased commercial tensions and the fragility of the US dollar continue to influence the price action.
At the time of writing, the gold is quoted about $ 3,340 per ounce, going down from the previous maximums about 3,349 $.
A commercial agreement between the US and the EU has been announced, which relieves tariff risks and reduces the demand for safe shelters.
The agreement reduces the base tariff on most EU goods to 15%, lowering from the 30% proposed previously, in exchange for better market access to US companies in digital services, agriculture and clean energy.
The agreement, modeling according to the commercial treaty between the US and Japan signed last week, aims to simplify industrial standards. The US dollar is strengthened to the perspectives of agreements before the FOMC meeting and avoids a disruptive tariff climb.
It also includes a framework for critical mineral cooperation, allowing EU exporters to benefit from the incentives of the Inflation Reduction Law (IRA) in the United States.
This advance has promoted the feeling of the stock market, strengthened the US dollar and reduced the demand for refuge assets such as gold.
“We are building a stronger transatlantic economy based on equity, access and innovation,” said Treasury Secretary Scott Besent, who confirmed the agreement after meetings with the EU Commerce Commissioner, Valdis Dombrovskis.
The news adds pressure to the Xau/USD, which continues to quote about $ 3,340, since investors rotate out of refuge assets amid a growing optimism about the stability of global trade.
Movements of the daily market of gold: commercial conversations between the US and China in the focus
- A solid labor context reduces pressure on the Federal Reserve (FED) to cut interest rates, which in turn supports greater yields and the US dollar, both traditionally bassists for gold.
- According to the CME Fedwatch tool, the markets are valuing a 59.5% probability of a 25 basic points rate cut in September, with a 38.9% probability that the rates remain without changes in the same meeting.
- Although the markets continue to value at least one rate cut of the Federal Reserve (FED) this year, the growing demand for alternative assets has limited the gains of gold. The minutes of the June FOMC meeting revealed that most FED officials were reluctant to support rates cuts. Most officials cite concerns about inflation, particularly those derived from high import costs resulting from global commercial tensions.
This makes the next commercial negotiations with the US and China especially. A failure in reaching new agreements could lead to a tariff recessed, reviving inflationary pressure and complicating the ability of the Fed to reduce rates. Such scenario could also relive the demand for sure refuge for gold.
Gold rises to the triangle support
The daily gold graphic shows a symmetrical triangle pattern, indicating consolidation and the potential of a breakout. With the Xau/USD still struggling to gain traction and break the resistance of the triangle, the bulls would need to exceed the fibonacci setback of 23.6% of the minimum to a maximum of April Move of April about $ 3,372 in an effort to recover the psychological level of $ 3,400. An increase in the bullish momentum above this area would bring back the maximum of June of $ 3,452, opening the door for a possible test of the historical maximum of $ 3,500.
At the bottom, the immediate support is at the psychological level of $ 3,350, resting just above the simple mobile average (SMA) of 50 days at 3,327 $. The FIBO level of 38.2% in $ 3,292 and the 50% level in $ 3,228 can provide a land for price share in case of a setback.
Meanwhile, the Relative Force Index (RSI) in 55 indicates a slight bullish inclination, without threatening the territory of overcompra. In general, the market seems to be prepared for a directional movement, with the operators probably observing a decisive breakout of the triangle structure.
GOLD – FREQUENT QUESTIONS
Gold has played a fundamental role in the history of mankind, since it has been widely used as a deposit of value and a half of exchange. At present, apart from its brightness and use for jewelry, precious metal is considered an active refuge, which means that it is considered a good investment in turbulent times. Gold is also considered a coverage against inflation and depreciation of currencies, since it does not depend on any specific issuer or government.
Central banks are the greatest gold holders. In their objective of supporting their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of strength of the economy and currency. High gold reserves can be a source of trust for the solvency of a country. Central banks added 1,136 tons of gold worth 70,000 million to their reservations in 2022, according to data from the World Gold Council. It is the largest annual purchase since there are records. The central banks of emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has a reverse correlation with the US dollar and US Treasury bonds, which are the main reserve and shelter assets. When the dollar depreciates, the price of gold tends to rise, which allows investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rebound in the stock market tends to weaken the price of gold, while mass sales in higher risk markets tend to favor precious metal.
The price of gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of gold to rise rapidly due to its condition of active refuge. As an asset without yield, the price of gold tends to rise when interest rates lower, while the money increases to the yellow metal. Even so, most movements depend on how the US dollar (USD) behaves, since the asset is quoted in dollars (Xau/USD). A strong dollar tends to keep the price of gold controlled, while a weakest dollar probably thrusts gold prices.
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.
