Gold eases from record high as bulls turn cautious amid further USD recovery
- Gold advances to a fresh record high on Wednesday amid a supportive fundamental backdrop.
- Fed rate cut bets, US tariffs uncertainty, and a weaker risk tone underpin the XAU/USD pair.
- Some follow-through USD strength caps the upside amid the overbought RSI on the daily chart.
Gold (XAU/USD) prolongs its uptrend witnessed over the past two weeks or so and advances to a fresh all-time peak, around the $3,546-3,547 region during the Asian session on Wednesday. The growing acceptance that the US Federal Reserve will cut interest rates this month continues to act as a tailwind for the non-yielding yellow metal. Apart from this, persistent trade-related uncertainties turn out to be another factor that benefits the precious metal's safe-haven status and contributes to the strong move up.
Meanwhile, the anxiety about government finances continues to undermine the British Pound (GBP) and the Japanese Yen (JPY), which, in turn, assists the US Dollar (USD) to trade with a positive bias for the second straight day. This, in turn, keeps a lid on any further gains for the Gold price amid extremely overbought conditions on short-term charts. Traders also seem reluctant ahead of the US Nonfarm Payrolls (NFP) report on Friday, which could offer more cues about the Fed's rate-cut path and drive the XAU/USD pair.
Daily Digest Market Movers: Gold price bulls pause for a breather amid some follow-through USD uptick
- According to the CME Group's FedWatch Tool, traders are pricing in an over 90% chance that the US Federal Reserve will lower borrowing costs by 25-basis-point at the end of the two-day policy meeting on September 17. Furthermore, market participants expect the central bank to deliver at least two rate cuts by the end of this year, which continues to boost the non-yielding Gold.
- Meanwhile, US President Donald Trump has been exerting pressure on the Fed Chair Jerome Powell to cut interest rates. Apart from this, Trump's move to oust Fed Governor Lisa Cook amid alleged mortgage fraud raised concerns about the central bank's ability to function without political interference. This, along with trade uncertainties, lifts the XAU/USD to a fresh record high.
- Trump on Tuesday said his administration will ask the Supreme Court for an expedited ruling on tariffs that a US appeals court found illegal last week. This adds another layer of uncertainty in the markets as the Supreme Court decision could radically change the macro landscape, which, in turn, is seen as another factor that offers additional support to the safe-haven precious metal.
- Rising fiscal deficits, persistent inflation, and eroding central bank credibility continue to push global bond yields higher, fueling anxiety about government finances. This led to the overnight slump in the British Pound and the Japanese Yen, which assists the US Dollar to preserve its recovery gains and holds back the XAU/USD bulls from placing fresh bets amid overbought conditions.
- Traders now look forward to the release of the US JOLTS Job Openings for short-term opportunities later today. This week's US economic docket also highlights the ADP report on private-sector employment and ISM Services PMI on Thursday. The focus, however, will remain glued to the closely-watched US Nonfarm Payrolls report on Friday, which should provide a fresh impetus to the XAU/USD pair.
Gold could consolidate before next leg up amid an extremely overbought daily RSI
From a technical perspective, the overnight momentum beyond the $3,500 psychological mark validated last week's breakout through a three-month-old trading range and backs the case for additional gains. That said, the daily Relative Strength Index (RSI) is flashing overbought conditions and makes it prudent to wait for some consolidation or a modest pullback before the next leg up.
In the meantime, any corrective slide might now find decent support near the $3,500 mark. A further decline is more likely to attract fresh buyers and remain limited near the $3,440 strong horizontal resistance breakpoint. The latter should act as a near-term base for the Gold price, which, if broken, might prompt some technical selling and pave the way for a fall towards the $3,400 round figure.
On the flip side, the Asian session high, around the $3,546-3,547 region, could act as an immediate hurdle. Nevertheless, the Gold price could extend the upward move in uncharted territory and aim towards conquering the $3,600 mark, which is the trading range breakout target.
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.
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