Gold holds near $3,400 as Fed bets, politics weigh
- XAU/USD trades around $3,397 as traders price in 90% chance of September Fed rate cut.
- Fed’s Williams stresses data-dependence; PCE, CPI, jobs reports remain crucial ahead of September meeting.
- White House–Fed tensions fuel safe-haven bids, but Gold needs a decisive break above $3,400 for momentum.
Gold price remains steady on Wednesday, even though the Greenback recovered from earlier losses triggered by threats to the Federal Reserve’s (Fed) independence. Nevertheless, Bullion sellers are not out of the woods as pressure from the White House continues. The XAU/USD trades at $3,397, up 0.12%.
The US economic docket remains light, except for remarks of New York Fed President John Williams, who said that rates can fall at some point but emphasized that only data would indicate if it is appropriate to reduce rates, based on the economy’s performance.
In a CNBC interview, Williams added that every meeting “from my perspective is live,” adding that risks of employment and inflation are “more in balance.” He said the Fed is “going to just have to see how the data play out.”
The Fed's next meeting is scheduled for September 16-17. Ahead of this date, there will be another jobs report, as well as two reports on inflation— the Personal Consumption Expenditures (PCE) Price Index for July and the Consumer Price Index (CPI) for August —before the Federal Open Market Committee (FOMC) convenes for its sixth meeting of the year.
Traders have priced in a 90% chance of a rate cut, according to the Prime Market Terminal interest rate probability tool.
JP Morgan analysts in a note said that “a weaker dollar should remain in focus, but we are more interested to see if this could catalyse a Gold breakout after a long period of consolidation.”
The fight between the White House and its influence on the Fed could prompt traders to buy Bullion, which so far has failed to climb “decisively” above $3,400. If cleared, then traders would eye the June 16 peak of $3,452.
Ahead this week, Gold traders will eye the release of GDP data, Initial Jobless Claims, and the Fed’s favorite inflation gauge, the Core PCE.
Daily digest market movers: Gold steadies as US yields tumble despite solid Dollar
- US Treasury yields are dropping. The 10-year Treasury note is down two basis points to 4.246%. US real yields — which are calculated from the nominal yield minus inflation expectations — are up one and a half bps at 1.826% at the time of writing.
- The US Dollar Index (DXY), which tracks the performance of the Dollar against a basket of six currencies, is flat at 98.21.
- Last week, Fed Chair Jerome Powell said, “The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” He added that “the stability of the unemployment rate and other labor market measures allows us to proceed carefully.”
- On Tuesday, Richmond Fed President Tomas Barkin said his forecast is for a modest adjustment to rates, as he noted, “I see modest movement in the economy.”
- Gold traders would eye the release of the US Gross Domestic Product (GDP) figures on their second estimate for Q2. Expectations are at 2.6%, up from 2.5% on the preliminary reading. Alongside this, Initial Jobless Claims for the week ending August 23, are forecast to dip from 235K to 230K.
Technical outlook: Gold trades sideways within $3,350-$3,400
Gold price continued its sideways movement, with investors awaiting the latest tranche of US economic data, as they also target the Nonfarm Payrolls (NFP) figures for the following week. However, it remains trading within the $3,350-$3,400 range as the Relative Strength Index (RSI) turned bullish.
If XAU/USD climbs past $3,400, the next resistance would be the June 16 high of $3,452, ahead of the record high of $3,500. Conversely, a drop below the 20-day Simple Moving Average (SMA) at $3,357, would expose the 50-day SMA at $3,348, followed by the 100-day SMA at $3,317.
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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