Gold rises on Fed-Trump drama, soft PPI and Israel strikes
- Gold reached a three-week high before retreating to around 3,350.
- Trump fuels volatility after hinting at Powell's removal, then walks back comments.
- India’s Gold imports plunge 40% in June as high prices curb demand.
Gold price rose during the North American session by 0.78%, helped by US President Donald Trump's comments on firing Federal Reserve (Fed) Chair Jerome Powell, despite his denials of the remarks, saying it is highly unlikely to fire him unless there is fraud. At the time of writing, XAU/USD trades at 3,348 after hitting a daily peak of $3,377 on Trump’s headlines.
A Bloomberg article revealed that “Trump discussed the possible move in a meeting with GOP lawmakers at the White House to discuss cryptocurrency legislation,” with Trump saying that almost every one of them liked the idea of removing Powell.
Besides domestic political issues, data and geopolitical developments pushed bullion prices higher. The Producer Price Index (PPI) in the US dipped below estimates but remains above the Federal Reserve’s 2% goal. On the geopolitical front, Israeli strikes on Syria capped XAU/USD drop, while the latest consumer inflation report in the US capped Gold’s upside below the $3,400 mark.
Physical demand for the yellow metal impeded XAU/USD from climbing back above $3,400. India revealed that Gold imports in June fell 40% from a year ago, due to high prices sapping demand, according to two industry officials.
Ahead this week, traders will eye Fed speeches, Retail Sales, jobs data, and the University of Michigan Consumer Sentiment report.
Gold daily market movers: Hovers near $3,350 awaiting a fresh catalyst
- Gold price continued to trade sideways, capped by the $3,300-$3,380 range on Wednesday. Bullion’s spike happened on reports of Powell’s firing. Bloomberg revealed that “A White House official, speaking on the condition of anonymity earlier Wednesday, said they expected Trump to move soon against the Fed chief. That was also the impression of some lawmakers following a Tuesday evening meeting, where Trump polled them on the possibility of moving against Powell.”
- When asked on Wednesday, Trump said that while “it’s highly unlikely,” he could still see removing the Fed chair for “fraud.”
- The US Produce Price Index (PPI) in June dipped from 2.6% to 2.3% YoY, below estimates of 2.5%. Excluding volatile items, PPI cooled from 3% to 2.6%, below forecasts of 2.7%.
- Although factory inflation eased, the latest consumer inflation report in the US showed that prices jumped in June and are closing in on the 3% threshold, far from the Fed’s 2% goal.
- US Treasury yields dipped on Wednesday, with the US 10-year Treasury yield, which usually correlates negatively with Gold, falling three basis points (bps) to 4.459%.
- Interest rate probability indicates that the Federal Reserve will maintain its current rates, with odds standing at 95% for a hold and 5% for a 25-basis-point rate cut at the July 30 meeting. Money markets had priced in less than 50 basis points (bps) of easing, with investors pricing in over 46 bps of rate cuts toward the end of the year.
- US President Trump stated that another deal with India is forthcoming. He added that they would deal with Japan with the tariffs letter. He announced on Tuesday that the US reached an agreement with Indonesia, in which the latter will pay 19% tariffs, while US producers will pay 0%.
XAU/USD technical outlook: Gold recovers the 20-day SMA and $3,350
Gold’s uptrend remains intact, but it has consolidated at around $3,350. The Relative Strength Index (RSI) indicates that bullish momentum is increasing, although price action remains sideways. For a bullish continuation, XAU/USD must clear $3,400, which will expose the June 16 high of $3,452, ahead of the record high of $3,500.
On the downside, if XAU/USD drops below $3,300, look for a decline to the June 30 low of $3,246, followed by the 100-day Simple Moving Average (SMA) at $3,205.
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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