Gold rallies above $3,400 as Fed independence fight boosts safe-haven demand
- XAU/USD rallies 0.43% as US Dollar weakens and US yields fall, lifting Gold to $3,413 peak.
- Solid GDP growth and lower jobless claims highlight US economic resilience, but safe-haven flows dominate.
- Fed Governor Cook sues Trump over firing attempt, stoking concerns on central bank independence and policy outlook.
Gold price rises to a five-week high of $3,413 as traders shrug off solid economic data from the United States (US), which justifies the current stance by the Federal Reserve (Fed) to hold rates unchanged. However, safe-haven demand, driven by threats to the Fed’s independence, underpins Bullion prices.
The XAU/USD trades with gains of over 0.43%, boosted by a weak Dollar and falling US Treasury yields.
Data from the US revealed that the economy is growing at a solid pace, exceeding forecasts and the preliminary reading for the second quarter of 2025. Additionally, the number of Americans filing for unemployment benefits decreased, a sign of strength in the labor market.
Although the economy is faring well, concerns about the Fed’s independence keep Gold underpinned.
Bloomberg reveals that Fed Governor Lisa Cook “sued President Donald Trump over his attempt to fire her for alleged mortgage fraud, kicking off a historic fight over independence of the US central bank.”
Ahead this week, traders will eye the release of the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index. The core PCE for July is expected to rise from 2.8% to 2.9% YoY.
Daily digest market movers: Gold shrugs off strong US economic data
- The Gross Domestic Product (GDP) in the US for the second quarter of 2025 expanded by 3.3% QoQ, above the preliminary reading of 3% exceeding forecasts for 3.1%.
- US Initial Jobless Claims for the week ending August 23 hit 229K, below forecasts of 230K and the previous week's 234K. Following the downward revision of Nonfarm Payroll figures at the beginning of the month, the statistics showed that the economy added 35K jobs per month during the last three months, compared to 123K in 2024 for the same period.
- US Treasury yields are dropping. The 10-year Treasury note is down 2.5 basis points to 4.215%. US real yields — which are calculated from the nominal yield minus inflation expectations — are also down three bps to 1.785% at the time of writing.
- The US Dollar Index (DXY), which tracks the performance of the US Dollar against a basket of six currencies, tumbles 0.37% to 97.82.
- Gold price is also boosted by investors increasing their bets that the Fed will reduce interest rates at the September meeting. Data from the Prime Market Terminal interest rate probabilities tool show that the odds for a 25 bps rate cut stand at 82%.
Technical outlook: Gold price poised to challenge $3,450 in the near term
Gold’s uptrend is set to continue after clearing the $3,400 figure, which has opened the door to test the next higher high of the July 23 high of $3,438. The Relative Strength Index (RSI) indicates that buyers are gaining momentum.
With that said, if XAU/USD rises past $3,438, the next area of interest would be the June 16 high of $3,452, ahead of the record high of $3,500. Contrarily, a drop below the 20-day Simple Moving Average (SMA) at $3,364 would expose the 50-day SMA at $3,348, followed by the 100-day SMA at $3,321.
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.
Recommended Articles
