- Gold price edges higher and moves away from the weekly low touched on Thursday.
- Dovish Fed expectations prompt fresh USD selling and continue to act as a tailwind.
- Geopolitical risks further act as a tailwind ahead of Fed Chair Jerome Powell’s speech.
Gold price (XAU/USD) fell more than 1% on Thursday as bulls opted to take some profits off the table amid a goodish rebound in the US Treasury bond yields and the US Dollar (USD). The downside, however, remains cushioned in the wake of growing acceptance that the Federal Reserve (Fed) will start lowering borrowing costs in September. The bets were reaffirmed by rather unimpressive US macro data, which pointed to a cooling labor market and suggested that the economy is at risk of a slowdown. This tempers investors’ appetite for riskier assets and offers support to the safe-haven precious metal.
Apart from this, worries about a broader conflict in the Middle East assisted the Gold price in attracting some dip-buyers during the Asian session on Friday. The XAU/USD, however, remains below the $2,500 psychological mark as traders now seem reluctant and prefer to wait on the sidelines ahead of Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, due later this Friday. Powell’s remarks will be scrutinized closely for fresh cues about the Fed’s rate-cut path. Apart from this, geopolitical developments will play a key role in influencing the XAU/USD and determining the near-term trajectory.
Daily Digest Market Movers: Gold price attracts fresh buyers amid dovish Fed expectations, renewed USD selling
- The US Dollar staged a goodish bounce from the 2024 low touched the previous day amid rebounding US Treasury bond yields and drove flows away from the Gold price on Thursday.
- The attempted USD recovery lacks follow-through in the wake of bets for an imminent start of the Federal Reserve’s rate-cutting cycle in September, which helps limit losses for the XAU/USD.
- On the economic data front, the US Department of Labor (DoL) reported that Initial Jobless Claims rose to a seasonally adjusted 232,000 in the week ending August 17, up from the 228K previous.
- This follows the annual benchmark review of employment data released on Wednesday, which showed that US employers added 818,000 fewer jobs than reported during the year through March.
- Moreover, the minutes of the July 30-31 FOMC meeting revealed that an increasing number of policymakers backed the case for a rate cut next month amid progress in bringing down inflation.
- The S&P Global flash PMI indicated that business activity in the US manufacturing sector shrank at the fastest pace this year, while the gauge for the services sector unexpectedly ticked higher.
- The composite PMI showed that the business activity in the US private sector continued to expand at a healthy pace and a fall in selling price inflation to a level close to the pre-pandemic average.
- Kansas City Fed President Jeffrey Schmid said that there is still work to do on sustainably getting inflation back to 2% and that he needs to see more data before supporting the decision to reduce rates.
- Philadelphia Fed President Patrick Harker said that jobs market revisions weren’t a surprise and that he was on board with a September interest rate cut as long as the data performs as expected.
- Separately, Boston Fed President Susan Collins said that it will soon be appropriate to begin cutting rates as data on inflation are consistent with more confidence inflation getting back to 2%.
- The market attention now shifts to Fed Chair Jerome Powell’s speech, which will be scrutinized for cues about the interest rate trajectory and provide a fresh directional impetus to the yellow metal.
Technical Analysis: Gold price could accelerate the corrective slide once the $2,470 pivotal support is broken decisively
From a technical perspective, the overnight downfall stalled near the $2,370 horizontal resistance breakpoint, now turned support, which should now act as a key pivotal point. A convincing break below might prompt some technical selling and drag the Gold price towards the next relevant support near the $2,345-2,343 region. The corrective decline could extend further towards the 50-day Simple Moving Average (SMA), currently pegged just above the $2,400 round figure.
On the flip side, momentum back above the $2,500 mark now seems to confront some resistance near the $2,513-2,514 area. This is followed by the record high, around the $2,531-2,532 region, which if cleared will be seen as a fresh trigger for bullish traders and set the stage for an extension of the Gold price’s recent well-established uptrend.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
