Gold Price reverses part of post-US CPI downdraft amid Middle East tensions
- Gold price regains some positive traction following the overnight post-US CPI decline.
- Persistent geopolitical risks and Fed rate cut bets continue to offer support to the metal.
- A modest USD uptick and a positive risk tone could act as a headwind for the XAU/USD.
Gold price (XAU/USD) witnessed an intraday turnaround from the vicinity of the record peak and dropped over 1.5% intraday following the release of the US consumer inflation figures on Wednesday. The closely-watched US CPI indicated that inflation is on a downward trend and reaffirmed bets for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle in September. Investors, however, scaled back their expectations for more aggressive policy easing, which led to a modest US Dollar (USD) rebound from the vicinity of a multi-month low touched last week and weighed on the non-yielding yellow metal.
That said, the risk of a broadening conflict in the Middle East helped limit the downside for the safe-haven Gold price and find some support near the $2,438 area. The precious metal recovered around $10 from the daily low and gained some follow-through traction during the Asian session on Thursday, though a further USD buying keeps a lid on any meaningful appreciating move. Nevertheless, the XAU/USD, for now, seems to have snapped a two-day losing streak as traders now look to the US Retail Sales figures and other important US macro releases for a fresh impetus later during the North American session on Thursday.
Daily Digest Market Movers: Gold price attracts some haven flows amid dovish Fed expectations
- Data published on Wednesday showed that US consumer prices rebounded as anticipated in July and dashed hopes for a bigger interest rate cut by the Federal Reserve in September.
- In fact, the US Labor Department's Bureau of Labor Statistics (BLS) reported that the headline US CPI rose moderately, by 0.2% in July after falling 0.1% in the previous month.
- The annual increase in the CPI, however, slowed a bit and fell below 3% for the first time in nearly 3-1/2 years, suggesting continued progress towards the Fed's inflation goals.
- The core CPI, which excludes volatile food and energy prices, increased by 0.2% during the reported month and eased to 3.2% in the 12 months through July from 3.3% in June.
- According to the CME Group's FedWatch Tool, investors now see a 36% chance of a 50-basis point rate cut at the next FOMC meeting versus the 50% prior to the US CPI data.
- This triggered a late recovery in the US Treasury bond yields, which assisted the US Dollar in attracting some buyers at lower levels and weighed on the non-yielding yellow metal.
- The USD Index (DXY) gains some follow-through traction on Thursday and acts as a headwind for the commodity, though elevated geopolitical tensions continue to offer some support.
- Mediators are hoping to kick-start ceasefire negotiations between Israel and Hamas on Thursday amid the risk of an imminent Iranian attack on Israel within the next few days.
- Traders now look to the US economic docket – featuring Retail Sales, Weekly Initial Jobless Claims and regional manufacturing indices – for short-term opportunities.
Technical Outlook: Gold price bulls have the upper hand while above the weekly low around $2,424
From a technical perspective, the overnight swing low, around the $2,438 region, now seems to protect the immediate downside ahead of the $2,424 area, or the weekly trough touched on Monday. Some follow-through selling could make the Gold price vulnerable to weaken further below the $2,400 mark and test the 50-day Simple Moving Average (SMA) pivotal support, currently pegged near the $2,380 zone. A convincing break below the latter might expose the 100-day SMA, near the $2,360 region, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
Meanwhile, oscillators on the daily chart are holding in positive territory and support prospects for additional near-term gains. That said, any further move up is more likely to confront some resistance near the $2,471-2,472 region ahead of the $2,483-$2,484 area or the all-time peak touched in July. A subsequent rise beyond the $2,500 psychological mark will confirm a breakout through a one-month-old broader trading range and set the stage for a further near-term appreciating move.
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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