- Gold prices are trading in negative territory for the third consecutive day in the Asian session on Tuesday.
- Rising expectations of a US Fed rate cut and geopolitical risks could help limit gold’s losses.
- Investors are looking to the US ISM PMI for August for fresh impetus.
Gold (XAU/USD) price is losing ground amid a stronger US Dollar (USD) and higher US Treasury yields on Tuesday. However, anticipation that the US Federal Reserve (Fed) will cut interest rates in September could support the price of the precious metal as lower interest rates reduce the opportunity cost of holding non-yielding gold. Moreover, ongoing geopolitical tensions in the Middle East could boost safe haven assets like Gold.
Looking ahead, the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) will be released on Tuesday. The highlight this week will be the US Non-Farm Payrolls (NFP) for August, which could determine the pace of interest rate cuts by the Fed and could influence the price of Gold in the near term.
Daily Market Movers Roundup: Gold Price Faces Selling Pressure Amid USD Rebound
- Protests erupted across Israel on Monday in a new wave of anger over the government’s failure to secure a hostage ceasefire deal with Hamas, according to CNN. The movement is fueled by the killing in Gaza of six hostages, whose bodies were recovered by Israeli soldiers this weekend.
- China’s Caixin manufacturing PMI rose to 50.4 in August from 49.8 in July, above the market consensus of 50.0.
- The US ISM manufacturing PMI for August is expected to improve to 47.5 in August from 46.8 in July, while the services PMI is estimated to fall to 51.1 in August from 51.4 previously.
- The U.S. economy is expected to see 163,000 new job additions in August. The unemployment rate is expected to fall to 4.2%.
- Markets now price in a nearly 69% chance of a 25 basis point (bps) rate cut by the Fed in September, while the chance of a 50 bps reduction stands at 31%, according to the CME FedWatch tool.
Technical Analysis: Gold price maintains positive long-term momentum
Gold price is lower on the day. According to the daily chart, the constructive outlook for the precious metal prevails as the price is well above the key 100-day exponential moving average (EMA). The bullish momentum is reinforced by the 14-day Relative Strength Index (RSI), which is positioned above the midline around 55.70, suggesting that the rise is more likely to resume than reverse.
The key resistance level for XAU/USD emerges at the $2,530-$2,540 zone, which represents the upper boundary of the five-month ascending channel and the all-time high. A decisive break above the mentioned level could see a rally towards the psychological level of $2,600.
On the other hand, the August 22 low at $2,470 acts as an initial support level for the yellow metal. A break below this level could drag the price further south to $2,432, the August 15 low. The next containment level to watch is $2,372, the 100-day EMA.
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.
