Gold price trims part of overnight gains amid risk-on mood; US inflation data in focus
- Gold price pulls back from the vicinity of the monthly peak retested earlier this Tuesday.
- Bulls opt to lighten their bets amid a positive risk tone and ahead of the US inflation data.
- Geopolitical risks and bets for a 50-bps rate cut by the Fed should help limit the downside.
Gold price (XAU/USD) rallied more than 1% on Monday amid safe-haven flows on the back of concerns about a wider conflict in the Middle East and Ukraine's surprise offensive attack on Russia. Furthermore, dovish Federal Reserve (Fed) expectations kept the US Dollar (USD) bulls on the defensive and pushed the non-yielding yellow metal back closer to the monthly top during the Asian session on Tuesday.
That said, the upbeat market mood prompts some selling around the Gold price during the Asian session on Tuesday. Bulls also seem reluctant and prefer to wait for the release of the US inflation figures before positioning for any further appreciating move. Nevertheless, the commodity remains close to the all-time peak touched in July and seems poised to break through a short-term range held over the past month or so.
Daily Digest Market Movers: Gold price might continue to draw support from Middle East tensions and dovish Fed expectations
- Israel stepped up its operations near the southern Gaza city of Khan Younis on Monday amid the risk of a broader conflict in the Middle East, boosting demand for the safe-haven Gold price.
- Israel is also preparing for the possibility of an imminent attack by Iran and the Lebanese group Hezbollah in retaliation for the assassination of Hamas leader Ismail Haniyeh in Tehran in late July.
- Russian President Vladimir Putin told Ukraine to expect a worthy response to its recent cross-border incursion into western parts of the Kursk region, which was about 12 km deep and 40 km wide.
- This comes on top of market expectations for a bigger, 50 basis points interest rate cut by the Federal Reserve in September and continues to act as a tailwind for the non-yielding yellow metal.
- The upside for the XAU/USD, however, remains capped in the wake of a positive risk tone and as traders opt to move to the sidelines ahead of the critical US inflation figures.
- The US Producer Price Index (PPI) is due on Tuesday, followed by the US Consumer Price Index (CPI) on Wednesday and should provide fresh cues about the Fed's policy path.
- The readings are expected to show that inflation cooled in July, giving the US central bank headroom to start its policy-easing cycle, supporting prospects for further gains for the commodity.
Technical Analysis: Gold price bulls could aim to retest the all-time peak, around the $2,483-2,484 area touched in July
From a technical perspective, the overnight breakout through the $2,448-2,450 horizontal resistance was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and further suggest that the path of least resistance for the Gold price is to the upside. Hence, a subsequent move back towards challenging the record high, around the $2,483-2,484 area, looks like a distinct possibility. This is followed by the $2,500 psychological mark, which if cleared decisively will set the stage for an extension of the upward trajectory.
On the flip side, the $2,450-2,448 resistance breakpoint now seems to protect the immediate downside, below which the Gold price could slide back to the overnight swing low around the $2,424-2,423 region. The next relevant support is pegged near the $2,412-2,410 area ahead of the $2,400 round-figure mark. A convincing break below could expose the 50-day Simple Moving Average (SMA) support near the $2,376-2,375 region, which should act as a key pivotal point. Some follow-through selling could drag the Gold price to the late July low, around the $2,353-2,352 area. The latter coincides with the 100-day SMA and a sustained weakness below will shift the near-term bias in favor of bearish traders.
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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