Gold price trades with mild positive bias; lacks bullish conviction amid risk-on mood

Source Fxstreet
  • A combination of supporting factors pushes the Gold price higher for the second straight day.
  • The USD remains depressed amid the September Fed rate cut bets and underpins the metal. 
  • Geopolitical risks further benefit the safe-haven XAU/USD, though bulls seem reluctant.

Gold price (XAU/USD) once again showed some resilience below the 50-day Simple Moving Average (SMA) on Friday and staged a modest recovery from the vicinity of over a two-week low touched the previous day. The move up followed the release of the US Personal Consumption Expenditures (PCE) Price Index, which showed that inflation rose modestly in June and lifted bets for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle. The US Treasury bond yields drifted lower after the inflation data, undermining the US Dollar (USD) and benefiting the non-yielding yellow metal.

Apart from this, persistent worries about geopolitical risks stemming from the ongoing conflicts in the Middle East assist the safe-haven Gold price to gain follow-through traction during the Asian session on Monday. That said, the risk-on impulse – as depicted by the upbeat mood across the global equity markets – could act as a headwind for the safe-haven precious metal. Traders might also prefer to move to the sidelines and wait for the outcome of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday before committing to the next leg of a directional move for the commodity. 

Daily Digest Market Movers: Gold price draws support from Fed rate cut bets, geopolitical risks

  • A tame US inflation data reaffirmed market expectations that the Federal Reserve (Fed) will cut interest rates in September and drive flows towards the non-yielding Gold price higher on Friday.
  • The US Commerce Department's Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index edged 0.1% higher last month after being unchanged in May.
  • Over the past 12 months through June, the PCE Price Index eased slightly from 2.6% in the previous month and was up 2.5%, matching consensus estimates and adding to signs of easing price pressures. 
  • The core PCE Price Index, which excludes volatile food and energy prices and is the Fed's preferred inflation gauge, showed a monthly increase of 0.2% in June and the yearly rate held steady at 2.6%. 
  • The improving inflation landscape dragged the yield on the benchmark 10-year note yields to a nearly two-week low on Monday, which continues to undermine the US Dollar and benefits the  XAU/USD. 
  • The Golan Heights attack on Saturday has raised worries of an all-out war between Israeli forces and Hezbollah in Lebanon, which further underpins demand for the safe-haven precious metal. 
  • A strong rally across the global equity markets might keep a lid on any runaway rally for the commodity ahead of the crucial two-day FOMC monetary policy meeting, starting on Tuesday. 
  • Investors this week will further take cues from the Bank of Japan decision on Wednesday, which will be followed by the Bank of England meeting on Thursday and important US macro releases. 

Technical Analysis: Gold price struggles to build on intraday strength beyond the $2,400 mark

From a technical perspective, the recent repeated failures to find acceptance below the 50-day SMA and the subsequent bounce warrant some caution for bearish traders amid neutral oscillators on the daily chart. Bulls, however, struggle to capitalize on the Asian session uptick to levels beyond the $2,400 mark, making it prudent to wait for strong follow-through buying before confirming that the Gold price has bottomed out. 

In the meantime, momentum above the $2,400 round figure is likely to confront some resistance near the $2,412 area ahead of last week's swing high, around the $2,432 region. A sustained strength beyond the latter will suggest that the corrective decline from the all-time peak touched earlier this month has run its course and set the stage for additional gains. The Gold price might then climb to the $2,469-2,470 intermediate resistance and challenge the record peak, around the $2,483-2,484 zone. 

On the flip side, weakness below the $2,380 level might continue to attract buyers near the 50-day SMA, currently pegged near the $2,360-2,359 region, and remain limited. A sustained breakdown through the said support, however, will be seen as a fresh trigger for bearish traders and drag the Gold price to the next relevant support near the $2,325 area. The downward trajectory could extend further towards testing the $2,300 round-figure mark for the first time since late June.

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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