Gold holds just below $3,400 as Fed drama hits dollar
Gold stayed firm just under $3,400 per troy ounce on Tuesday, lifted by renewed weakness in the US Dollar (USD) and lingering doubts over the Fed’s independence after President Trump’s unprecedented attempt to fire Governor Lisa Cook.
Also supporting the move higher in the precious metal, US yields retreat in the short end and the belly of the curve, setting aside Monday’s uptick.
Fed uncertainty keeps demand alive
Traders are still betting on Fed rate cuts as soon as September, following Powell’s dovish Jackson Hole remarks last week. That backdrop, plus softer US data after July’s Durable Goods orders fell 2.8% and the Conference Board’s Consumer Confidence dropped in August are keeping safe-haven demand alive on turnaround Tuesday.
Key levels on the chart
Next on the upside for the yellow metal emerges its August ceiling of $3,409 (August 8), ahead of the July peak at $3,439 (July 23) and June’s top at $3,451 (Jun 16).
On the other hand, first support sits at July’s base of $3,268 (Jul 30), ahead of the June base at $3,247 (Jun 30). Down from here comes May’s valley at $3,120 (May 15), ahead of the 200-day SMA at $3,062.
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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