Gold corrects from all-time peak as rise in Asian stocks prompts profit-taking
- Gold price corrects sharply from the all-time peak amid receding safe-haven demand.
- A modest USD uptick further contributes to the downfall amid overbought conditions.
- Fed rate cut bets and trade-related uncertainties could limit losses for the commodity.
Gold (XAU/USD) is extending the previous day's late pullback from the all-time peak, around the $3,578-3,579 area, and drifting lower during the Asian session on Thursday. A sense of calm in the global bond markets helps ease investors' anxiety, which is evident from a stable performance around the equity markets and prompts some profit-taking around the safe-haven precious metal amid overbought conditions. Furthermore, the emergence of some US Dollar (USD) buying turns out to be another factor undermining demand for the commodity and contributing to the corrective slide.
Meanwhile, the US JOLTS Job Openings data released on Wednesday signaled that the labor market is cooling and reaffirms bets that the Federal Reserve (Fed) will lower borrowing costs later this month. Moreover, the growing acceptance that the US central bank will deliver at least two 25-basis-point (bps) rate cuts by the year-end could act as a headwind for the USD and offer some support to the non-yielding Gold. Traders might also opt to wait for the release of the US Nonfarm Payrolls (NFP) report on Friday for cues about the Fed's rate-cut path before placing fresh directional bets.
Daily Digest Market Movers: Gold is undermined by a sense of calm in the markets and modest USD strength
- Demand for traditional safe-haven assets recedes amid signs of stability in the fixed-income and equity markets, which is seen undermining the Gold price on Thursday. Furthermore, a modest US Dollar (USD) uptick drags the commodity away from the record high amid overbought conditions on short-term charts, following the relentless rally over the past two weeks or so.
- Any meaningful USD appreciation, however, seems elusive in the wake of expectations that the US Federal Reserve will resume its rate-cutting cycle this month. The bets were reaffirmed by Wednesday's US JOLTS report, showing that the number of job openings stood at 7.18 million in July compared to the previous month's downwardly revised reading of 7.35 million.
- On the trade-related front, US President Trump on Tuesday said his administration would seek an immediate hearing from the Supreme Court in hopes of overturning a federal appeals court's ruling deeming most of his tariffs illegal. This adds a layer of uncertainty in the markets, which could offer some support to the XAU/USD pair and help limit any meaningful decline.
- Traders now look forward to Thursday's US economic docket – featuring the ADP report on private-sector employment, the usual Weekly Initial Jobless Claims, and ISM Services PMI. The market focus, however, will remain glued to the release of the official monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report for August on Friday.
- The crucial data will play a key role in influencing market expectations about the Fed's rate-cut path, which, in turn, will drive the USD demand in the near term and provide a fresh directional impetus to the commodity. In the meantime, the supportive fundamental backdrop backs the case for the emergence of some dip-buying and warrants caution for the XAU/USD bears.
Gold price could accelerate corrective fall below 23.6% Fibo. level and $3,500
From a technical perspective, the intraday corrective pullback finds some support near the 23.6% Fibonacci retracement level of the recent rally from the vicinity of the $3,300 mark, or the 100-day Simple Moving Average (SMA) pivotal support. Some follow-through selling, leading to a subsequent break below the $3,500 psychological mark, could pave the way for a deeper corrective pullback towards the $3,440 region. The latter represents a multi-month-old trading range hurdle, which, if broken, will suggest that the Gold price has topped out and shift the near-term bias in favor of bearish traders.
On the flip side, the $3.560 area could offer some resistance ahead of the $3,578-3,579 region, or the all-time peak touched on Wednesday. The Gold price could extend the momentum further in the uncharted territory and aim towards conquering the $3,600 mark, or the trading range breakout target.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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