Gold trades with positive bias on softer USD; Fed hike bets cap gains ahead of US NFP
- Gold trades with a positive bias for the second straight day amid a modest USD downtick.
- Elevated Fed hike bets and Iran risks should limit USD losses and cap the precious metal.
- Traders might also opt to wait for the key US NFP report before placing directional bets.
Gold (XAU/USD) attracts fresh buyers during the Asian session on Thursday, following the previous day's volatile price swings and a late pullback from an over one-week high. The US Dollar (USD) edges lower on the back of Wednesday's softer-than-expected US macro data and turns out to be a key factor supporting the commodity for the second consecutive day. However, elevated US Federal Reserve (Fed) rate hike expectations, along with geopolitical risks, act as a tailwind for the buck and should keep a lid on the bullion ahead of the US employment details.
Automatic Data Processing (ADP) reported on Wednesday that private sector employment in the US rose by 98K in June, down from the previous month's unrevised reading of 122K and missing consensus estimates of 113K. Furthermore, the Institute for Supply Management’s (ISM) Manufacturing PMI eased from 54 to 53.3 in June. Adding to this, the Prices Paid Index fell to 73 from 82.1, while the Employment Index edged up to 49.7 from 48.6 in May. Adding to this, the recent slump in Crude Oil prices has dramatically tempered near-term inflation fears and keeps the USD bulls on the defensive, which, in turn, is seen acting as a tailwind for the Gold price.
Nevertheless, the CME Group's FedWatch Tool indicates that traders are still pricing in around a 64% chance that the US central bank will raise borrowing costs in September and assigning a nearly 85% probability of a move by the end of this year. The bets were reaffirmed by Fed Chair Kevin Warsh's comments on Wednesday, saying that he will stick to the 2% inflation target and disappoint anyone who expects loose monetary policy despite President Donald Trump's call for rate cuts. Moreover, several Fed officials have indicated that higher interest rates may be necessary to bring inflation back to the 2% target. This should limit USD losses and cap the non-yielding Gold.
Meanwhile, Iran and the US concluded a round of indirect talks in Qatar with no sign that the two countries have made headway toward lasting peace amid tensions over the critical Strait of Hormuz. Separately, Russia launched a barrage of missiles and drones on Ukraine’s capital, Kyiv, early Thursday. This keeps geopolitical risks in play and favors the USD bulls as the focus remains on the release of the US Nonfarm Payrolls (NFP) report, due later during the North American session. The crucial data remains a key driver of the Fed's monetary policy, which, in turn, should influence the buck and help investors determine the near-term trajectory for the Gold price.
XAU/USD 4-hour chart
Gold needs to surpass 38.2% Fibo. level and 100-SMA on H4 to back the case for further gains
From a technical perspective, the overnight short-covering rally faltered near the 38.2% Fibonacci retracement level of the recent decline witnessed over the past two weeks or so. Moreover, the XAU/USD pair remains below the 100-period Simple Moving Average (SMA), reinforcing a near-term bearish bias.
However, momentum indicators are improving, with the Moving Average Convergence Divergence (MACD) turning higher above zero and the Relative Strength Index (RSI) holding around 54. Furthermore, acceptance above the 23.6% Fibo. backs the case for additional recovery attempts that remain constrained by the prevailing structure.
Meanwhile, immediate resistance is located at the 38.2% Fibo. at $4,112.32, followed by the 100-period SMA at $4,145.47 and the 50% retracement at $4,164.62. Successive barriers are pegged at the 61.8% level at $4,216.91, the 78.6% retracement at $4,291.37, and the cycle high at $4,386.20.
On the downside, initial support is seen at the reclaimed 23.6% retracement at $4,047.62, while a deeper slide would expose the structural floor around the swing low at $3,943.03.
(The technical analysis of this story was written with the help of an AI tool.)
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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