Gold price moves away from over one-week low, climbs back above $2,400 mark
- A combination of factors dragged the Gold price to over a one-week low on Monday.
- Bets that the Fed will cut rates in September lend some support and help limit losses.
- The US Q2 GDP on Thursday and the US PCE data on Friday will be eyed for fresh impetuses.
Gold price (XAU/USD) extended its recent corrective slide from the record high touched last week and fell to a more than one-week trough on Monday. US President Joe Biden's withdrawal from the 2024 Presidential election increased the chances of Donald Trump becoming the next US President, raising hopes of a looser regulatory environment. This, along with unexpected interest rate cuts by the People's Bank of China (PBoC) on Monday, boosted investors' appetite for riskier assets and weighed heavily on the safe-haven precious metal.
Meanwhile, a second Donald Trump presidency is expected to push up long-term inflation expectations, leading to the overnight rise in the US Treasury bond yields. This acted as a tailwind for the US Dollar (USD) and further contributed to driving flows away from the non-yielding Gold price. That said, growing acceptance that the Federal Reserve (Fed) will start its rate-cutting cycle in September caps gains for the USD and assists the XAU/USD to climb back above the $2,400 mark during the Asian session on Tuesday.
Daily Digest Market Movers: Gold price attracts some buyers as Fed rate cut bets continue to weigh on the USD
- Investors reacted little to US President Joe Biden's decision to end his re-election campaign on Sunday amid expectations that the US equity market would benefit from Trump's proposed policies.
- Adding to this, the People's Bank of China (PBoC) surprised markets by cutting key short and long-term rates and provided an additional boost to the global risk sentiment.
- China's central bank lowered the one-year loan prime rate (LPR), the five-year LPR and the seven-day reverse repo rate by 10 basis points (bps) to 3.35%, 3.85% and 1.7%, respectively.
- The move comes in the wake of a disappointment from the lack of short-term stimulus to support the real economy from the Third Plenum meeting Chinese officials held last week.
- Nevertheless, the combination of factors triggered a fresh wave of the risk-on trade and turned out to be a key factor that led to the overnight downfall in the safe-haven Gold price.
- Moreover, a second Trump presidency is expected to be more inflationary, pushing the US Treasury bond yields higher and contributing to driving flows away from the XAU/USD.
- Meanwhile, money markets have fully priced in a rate cut by the Federal Reserve in September, which keeps the US Dollar bulls on the defensive and lends support to the yellow metal.
- Traders now look to Tuesday's US economic docket, featuring Existing Home Sales and the Richmond Manufacturing Index, for short-term opportunities later during the North American session.
- The market focus, however, will remain glued to Thursday's release of the Advance US Q2 GDP print and the US Personal Consumption Expenditures (PCE) Price Index data on Friday.
- Apart from this, investors, this week will confront the release of flash PMIs, which should provide cues about the health of the global economy and provide some impetus to the commodity.
Technical Analysis: Gold price needs to find acceptance below $2,385 confluence support for bears to seize control
From a technical perspective, the Gold price finds support and attracts some buyers near the $2,385 resistance breakpoint. The said area now coincides with the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level of the June-July rally. This, in turn, should now act as a key pivotal point, which if broken decisively should pave the way for deeper losses. The Gold price might then slide to 61.8% Fibo. level, around the $2,366-2,365 region, en route to the $2,352-2,350 zone before eventually dropping to the 78.6% Fibo. level, near the $2,334-2,334 area, and the $2,300 mark.
On the flip side, any further move up is likely to confront some resistance near the $2,417-2,418 zone, above which a bout of a short-covering has the potential to lift the Gold price to the $2,437-2,438 region. A sustained strength beyond the latter will suggest that the corrective decline has run its course and shift the near-term bias back in favor of bullish traders. The subsequent rally has the potential to lift the XAU/USD back towards the all-time peak, around the $2,482 area touched on July 17, with some intermediate resistance near the $2,458 region.
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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