- Gold price falls after the release of US Retail Sales data for August.
- Traders now await the key Fed policy decision with probabilities favoring a larger 0.50% cut to interest rates.
- Such a move would boost the attractiveness of Gold.
- Analysts call a 10-year secular bull trend starting for commodities, including Gold.
Gold (XAU/USD) pulls back to the $2,570s after US Retail Sales data for August on Tuesday – the last major US macroeconomic data release before the Federal Reserve (Fed) makes its decision on Wednesday.
US Retail Sales rose by 0.1% in August month-on-month, compared to the revised-up 1.1% rise registered in July. This was, however, above consensus expectations of a 0.2% decline, according to data from the US Census Bureau.
US Retail Sales ex Autos, meanwhile, rose by 0.1% after a 0.4% increase in July. This was below estimates of a 0.2% rise.
The data slightly reduced the probabilities of the Federal Reserve (Fed) cutting interest rates by a larger 0.50% on Wednesday, weighing marginally on Gold. Prior to the release the probabilities stood at 67%, after the data they had changed to 65%, according to the CME FedWatch tool.
Gold surges as bets increase the Fed will double cut
Gold shot to an all-time-high (ATH) of $2,589 on Monday after market bets that the Fed will make a double-dose 0.50% cut to interest rates at its meeting on Wednesday rose sharply, according to market-based gauges.
The expectation that the Fed will slash interest rates is positive for Gold because it lowers the opportunity cost of holding the yellow metal, which is a non-interest-paying asset, thus making it more attractive to investors.
Gold is entering a bullish super-cycle, analysts say
Longer-term prospects for the previous metal remain upbeat, according to several leading analysts, who are arguing there is evidence that commodities – including Gold – are entering a new bullish super-cycle.
“The last [two] times we saw these valuations for commodities was 1971 and 2000,” tweeted Michaël van de Poppe, Founder of MN Consultancy. “Commodities & #Crypto are extremely undervalued and it’s likely that commodities go into a 10-year long bull market.”
Van de Poppe is not the only commentator saying commodities are entering a secular bull market. According to a recent “Flow Show” note from Bank of America Investment Strategist Jared Woodard, a “commodity secular bull market in the 2020s is just getting started as debt, deficits, demographics, reverse-globalization, AI & net-zero policies are all inflationary,” reported Kitco News.
Technical Analysis: Gold stalls in uptrend
Gold’s price has pulled back into the $2,570s, however, the trend is bullish in the short, medium, and long-term. Given that it is a principle of technical analysis that “the trend is your friend,” the odds favor more upside. If there is a correction, therefore, it is likely to be short-lived before Gold resumes its broader uptrend.
XAU/USD Daily Chart
Gold is not yet overbought according to the Relative Strength Index (RSI), but it is close to overbought. If it enters the zone on a closing basis it will advise traders not to add to their long positions, although the rally may continue. If it enters overbought and then exits back into neutral it will be a sign of a deeper correction.
In the event of a correction, firm support lies at $2,550, $2,544 (0.382 Fibonacci retracement of the September rally), and $2,530 (former range high).
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.
