Market Data 
- Gold price loses traction in Monday’s Asian session.
- The stronger USD undermines the yellow metal, while the dovish Fed might cap its downside.
- Traders will focus on the US PMI data ahead of the employment report on Friday.
The Gold price (XAU/USD) extends its decline below the $2,500 psychological level on Monday. The firmer Greenback after the US July’s Personal Consumption Expenditures (PCE) Index has weighed on the precious metal. Furthermore, the concerns about the sluggish economy in China, the world’s top buyer of Gold, contribute to the precious metal’s downside.
Nonetheless, the rising expectation of an interest rate cut by the US Federal Reserve (Fed) in its September meeting might help limit Gold’s losses as lower interest rates reduce the opportunity cost of holding non-yielding gold. Looking ahead, the US ISM Manufacturing PMI for August is due on Tuesday, while the Services PMI will be released on Thursday. The attention will shift to the US employment data on Friday, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings for August.
Daily Digest Market Movers: Gold price retreats after US PCE inflation report
- Protests have broken out across Israel after the country’s military recovered the bodies of six hostages it said Hamas had killed in Gaza. Israel’s largest labor group has called for a strike, saying the “entire Israeli economy will shut down” Monday, per CNN.
- Chinese NBS Manufacturing Purchasing Managers’ Index (PMI) declined to 49.1 in August from 49.54 in July, missing the market consensus of 49.5. Non-Manufacturing PMI rose to 50.3 in August versus 50.2 prior, better than the estimates of 50.0.
- Data released by the US Bureau of Economic Analysis on Friday showed that the US headline Personal Consumption Expenditures (PCE) Price Index rose 2.5% YoY in July, compared to the previous reading of 2.5%, softer than the market expectations of 2.6%.
- The core PCE, which strips out volatile food and energy prices, climbed 2.6% YoY in July versus 2.6% prior, below the consensus of 2.7%.
- The markets are now pricing in a nearly 70% of 25 basis points (bps) rate cut by the Fed in September, while the odds of a 50 bps reduction are standing at 30%, according to the CME FedWatch tool.
Technical Analysis: Gold price maintains the constructive broader picture
The Gold price trades in negative territory on the day. The precious metal keeps the broader bullish context on the daily timeframe as the price holds above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) positions above the midline around 56.30, suggesting the path of least resistance is to the upside.
A five-month-old ascending channel’s upper boundary and the all-time high of $2,530-$2,540 appear to be a tough nut to crack for Gold bulls. A bullish breakout above this level could pave the way to the $2,600 psychological mark.
On the downside, the first downside target for yellow metal emerges at $2,470, the low of August 22. Sustained bearish momentum could set off a prolonged downward towards $2,432, the low of August 15. The next contention level to watch is $2,372, the 100-day EMA.
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.
