- Gold price struggles to capitalize on momentum from the previous day’s breakout beyond $2,400.
- Geopolitical risks, a modest USD pullback and global economic woes support the metal.
- Traders are looking forward to the BoJ decision for a short-term boost ahead of the Fed policy update.
Gold (XAU/USD) price surged to a multi-day peak around the $2,412-$2,413 resistance zone on Tuesday and drew support from several factors. The Israeli attack on Lebanon’s capital in retaliation for a rocket attack on the Golan Heights on Saturday raised the risk of further escalation of geopolitical tensions in the Middle East. Moreover, dismal German GDP data dashed hopes for a recovery in the Eurozone’s largest economy. This added to lingering concerns about a slowdown in China, the world’s second-largest economy, and benefited the safe-haven precious metal.
Apart from this, a modest pullback in the US Dollar (USD) from a near three-week high provided an additional boost to the Gold price. The USD remained depressed during the Asian session on Wednesday amid rising expectations that the Federal Reserve (Fed) will start cutting interest rates in September. However, the XAU/USD is struggling to gain follow-through traction as traders prefer to wait for the outcome of the two-day Federal Open Market Committee (FOMC) meeting. Meanwhile, the Bank of Japan (BoJ) policy decision could provide some impetus to the non-yielding yellow metal.
Daily Market Wrap: Gold Price Bulls Turn Cautious Ahead of Key Risks from Central Bank Events
- Geopolitical risks arising from ongoing conflicts in the Middle East, coupled with concerns about an economic slowdown and a modest pullback in the US dollar, pushed gold prices to a multi-day high on Tuesday.
- The Israeli military has struck Lebanon’s capital Beirut and targeted the Hezbollah commander responsible for the Golan Heights attack on Saturday, fuelling concerns about an all-out war in the region.
- According to preliminary estimates published by the federal statistics office Destatis, the German economy unexpectedly contracted by 0.1% in the second quarter compared with growth of 0.2% in the previous three months.
- The US Job Openings and Labor Turnover Survey (JOLTS) revealed that the number of job openings fell to 8.18M in June from 8.23M the previous month, although this was above the market expectation of 8.03M.
- The Conference Board’s Consumer Confidence Index rose slightly to 100.3 in July from the prior month’s downwardly revised reading of 97.8 as consumers remain relatively positive about the labor market.
- The USD gained a small boost in reaction to encouraging US macroeconomic data, although the momentum quickly faded amid bets on an imminent start of the Federal Reserve rate cut cycle in September.
- The National Bureau of Statistics (NBS) reported on Wednesday that business activity in China’s manufacturing sector contracted for a third consecutive month in July and growth in the service sector remained tepid.
- Investors are now looking forward to the Bank of Japan’s much-anticipated policy decision for a near-term boost, though the focus remains on the Fed’s policy update, which will, in turn, weigh on the non-yielding yellow metal.
Technical Analysis: Gold price finds acceptance above $2,400, looks set to appreciate further
From a technical perspective, the recent bounce from the vicinity of the $2,350 support zone, or the 50-day simple moving average (SMA), and the subsequent move beyond the $2,400 mark favor the bullish traders. Moreover, oscillators on the daily chart have again started gaining positive traction and support the prospects for further gains. Some follow-through buying beyond the $2,412-$2,413 region will reaffirm the positive outlook and lift the gold price to last week’s high, around the $2,432 zone. A sustained strength beyond the latter will suggest that the correction from the all-time high reached earlier this month has come to an end and will set the stage for further gains. XAU/USD could then climb to an intermediate hurdle near the $2,469-$2,470 region and aim to challenge the record high, around the $2,483-$2,484 zone.
On the other hand, the $2,400 mark now seems to protect the immediate downside ahead of the $2,383-$2,382 region, below which Gold price could slide back to the 50-day SMA, currently situated near the $2,359 zone. A convincing break through the latter, leading to a subsequent drop below last week’s low, around the $2,353 zone, will be seen as a fresh trigger for bearish traders and make XAU/USD vulnerable. The downward trajectory could further extend towards the test of the next relevant support near the $2,325 zone en route towards the $2,300 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 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.
