- Gold price struggles to capitalize on Monday’s gains amid some follow-through USD buying.
- Rising bets for a September Fed rate cut should limit the downside for the XAU/USD.
- Fed Chair Powell’s speech eyed for some impetus ahead of FOMC minutes on Wednesday.
Gold price (XAU/USD) attracted some dip-buyers near the $2,319-2,318 region and ended in the green at the start of a new week amid bets for a September interest rate cut by the Federal Reserve (Fed). The expectations were reaffirmed by data showing that the US manufacturing sector contracted for the third straight month in June and prices paid by factories for inputs dropped to a six-month low. This adds to signs that inflation is subsiding, which should allow the US central bank to start lowering borrowing costs. Apart from this, China’s economic woes, persistent geopolitical tensions and political uncertainty in the US and Europe, offered some support to the safe-haven precious metal.
That said, a solid US Dollar (USD) recovery from a multi-day low keeps a lid on any further gains for the Gold price. Concerns that a Trump presidency would be more inflationary than a Biden administration triggered a selloff in the US fixed-income market on Monday. This, in turn, pushed the yield on the benchmark 10-year government bond to its highest level in a month, which is seen as acting as a tailwind for the USD and capping the commodity. Traders also seem reluctant and prefer to wait for more cues about the Fed’s policy path before placing directional bets. Hence, the focus remains glued to Fed Chair Jerome Powell’s speech later today and the FOMC minutes on Wednesday.
Daily Digest Market Movers: Gold price struggles to lure buyers despite rising Fed rate cut bets
Softer US macro data released on Monday reinforced expectations that the Federal Reserve will cut interest rates in September and again in December, prompting some intraday short-covering around the Gold price.
The Institute for Supply Management (ISM) said its Manufacturing PMI remained in contraction territory for the second straight month and edged lower from 48.7 to 48.5 in June, missing consensus estimates.
Additional details of the report showed that the Employment Index declined to 49.3 from 51.1 in May and the Prices Paid Index – the inflation component – retreated from 57 to 52.1 during the reported month.
This comes on top of the US PCE Price Index on Friday, which showed that inflation in May slowed to its lowest annual rate in more than three years and lifted bets for an imminent start of the Fed’s rate-cutting cycle.
The US Treasuries sold off amid increasing odds of Donald Trump being elected as US President again later this year, which prompted some US Dollar short-covering and capped the upside for the XAU/USD.
Investors now look forward to Fed Chair Jerome Powell’s speech later this Tuesday for some meaningful impetus ahead of the FOMC minutes on Wednesday and the US Nonfarm Payrolls report on Friday.
Meanwhile, Tuesday’s US economic docket features the release of JOLTS Job Openings data, which might influence the USD price dynamics and further contribute to producing short-term trading opportunities.
Technical Analysis: Gold price continues to face resistance near 50-day SMA pivotal resistance
From a technical perspective, the Gold price, so far, has been struggling to make it through the 50-day Simple Moving Average (SMA) pivotal resistance. The said barrier is currently pegged near the $2,337-2,338 region and should act as a key pivotal point. A sustained strength beyond should pave the way for a move towards the next relevant hurdle near the $2,360-2,365 supply zone. Some follow-through buying should allow bulls to reclaim the $2,400 round-figure mark and aim towards challenging the all-time peak, around the $2,450 area touched in May.
On the flip side, weakness below the $2,319-2,318 area, or the overnight swing low, could find some support near the $2,300 mark ahead of the $2,285 horizontal zone. Failure to defend the said support levels will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day SMA, currently near the $2,258 area. The downward trajectory could eventually drag the XAU/USD to the $2,225-2,220 region en route to the $2,200 round-figure mark.
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.
Source: Gold price consolidates in a range below 50-day SMA ahead of Powell’s speech
