- Gold price struggles to capitalize on Monday’s gains amid some USD follow-through buying.
- Rising bets on a Fed rate cut in September should help limit the metal’s fall.
- Fed Chair Powell’s speech is being watched for some momentum ahead of the FOMC minutes on Wednesday.
Gold (XAU/USD) price attracted some buyers in the $2,319-$2,318 region and ended in the green at the start of a new week amid bets on a September interest rate cut by the Federal Reserve (Fed). Expectations were reaffirmed by data showing that the US manufacturing sector contracted for a third consecutive month in June and prices paid by factories for inputs fell to a six-month low. This adds to signs that inflation is easing, which should allow the US central bank to start cutting 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 robust recovery in the US Dollar (USD) 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 sell-off in the US fixed-income market on Monday. This, in turn, pushed the benchmark 10-year government bond yield to its highest level in a month, which is seen acting as a tailwind for the USD and capping the commodity. Traders also seem reluctant and prefer to wait for more clues on the Fed’s policy path before taking directional positions. Therefore, the focus remains centered on Fed Chair Jerome Powell’s speech later today and the FOMC minutes on Wednesday.
Daily Market Wrap: Gold price struggles to attract buyers despite rising Fed rate cut bets
Softer US macroeconomic 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 price of gold.
The Institute for Supply Management (ISM) said its manufacturing PMI remained in contraction territory for the second consecutive month, falling to 48.5 from 48.7 in June, missing consensus estimates.
Additional details in 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 is added to the Price Index PCE U.S. data on Friday showed inflation in May slowed to its lowest annual rate in more than three years and raised bets on an imminent start to the Fed’s rate-cutting cycle.
US Treasuries sold off amid increasing odds that Donald Trump will be re-elected as US President later this year, prompting some short-covering in the US Dollar and limiting the upside in XAU/USD.
Investors now look to Fed Chair Jerome Powell’s speech later on Tuesday for any significant impetus ahead of the FOMC minutes on Wednesday and the US Nonfarm Payrolls report on Friday.
Meanwhile, Tuesday’s US economic docket includes the release of JOLTS Job Openings data, which could influence USD price dynamics and further contribute to generating short-term trading opportunities.
Technical Analysis: Gold price continues to face resistance near the 50-day SMA pivotal resistance
From a technical perspective, gold price has, so far, been struggling to overcome the pivotal resistance of the 50-day simple moving average (SMA). The said barrier is currently fixed near the $2,337-$2,338 region and should act as a key pivot point. A sustained strength beyond it should pave the way for a move towards the next relevant hurdle near the $2,360-$2,365 supply zone. Some follow-up buying should enable the bulls to reclaim the $2,400 round-mark and aim to challenge the all-time high, around the $2,450 area touched in May.
On the downside, weakness below the $2,319-$2,318 area, or the overnight low, could find some support near the $2,300 mark before the $2,285 horizontal zone. Failure to defend such support levels will be seen as a fresh trigger for bearish traders and will drag gold price to the 100-day SMA, currently near the $2,258 area. The downward trajectory could eventually drag the XAU/USD pair to the $2,225-$2,220 region en route towards the $2,200 round-mark.
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 their aim 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.
The price of Gold 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, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the movements 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.
