- A combination of factors assists the Gold price in reversing a modest intraday downtick on Monday.
- Geopolitical risks and Fed rate cut bets lend support, though a positive risk tone might cap the upside.
- Traders also prefer to wait on the sidelines ahead of this week’s release of the key US inflation figures.
Gold price (XAU/USD) attracts some dip-buying near the $2,424 region on Monday and looks to build on last week’s goodish rebound from the 50-day Simple Moving Average (SMA) support. Investors remain concerned about the possibility of a wider conflict in the Middle East, which, in turn, is seen as a key factor acting as a tailwind for the precious metal. Apart from this, expectations for bigger interest rate cuts by the Federal Reserve (Fed) lend additional support to the non-yielding commodity.
The intraday uptick, however, lacks bullish conviction in the wake of a generally positive tone around the equity markets, which tends to undermine the safe-haven Gold price. Furthermore, a modest US Dollar (USD) uptick further contributes to capping gains for the XAU/USD. Traders also seem reluctant and prefer to wait on the sidelines ahead of the key US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (CPI) on Tuesday and Wednesday, respectively.
Daily Digest Market Movers: Gold price benefits from geopolitical risks and Fed rate cut bets
- The Israel Defense Forces (IDF) intercepted approximately 30 projectiles that were identified as crossing from Lebanon into northern Israel early Monday morning.
- The Israeli Air Force and Military Intelligence Directorate have been placed on high alert following observations in Western Iran, suggesting an imminent attack.
- Hamas leaders are asking mediators of the cease-fire negotiations with Israel to present a plan based upon previous talks instead of engaging in new ones.
- The US is strengthening its capabilities in the Middle East by sending an additional guided missile submarine to the region in light of escalating regional tensions.
- The developments raise the risk of a broader conflict in the region and lend some support to the safe-haven Gold price amid dovish Federal Reserve expectations.
- Market participants have fully priced in a 25-basis points Fed rate cut move at the September policy meeting and see an equal chance of a bigger, 50-bps rate cut.
- Fed Governor Michelle Bowman said on Sunday that the central bank may not be ready to cut rates in September amid upside risks for inflation and continued strength in the labor market.
- This, however, fails to assist the US Dollar in attracting meaningful buyers or provide any impetus to the non-yielding yellow metal at the start of a new trading week.
- Bullish traders, meanwhile, prefer to wait on the sidelines and keenly await the release of the latest US inflation figures this week before positioning for any further gains.
- The US Producer Price Index (PPI) and the US Consumer Price Index (CPI) are due on Tuesday and Wednesday, respectively, followed by the US Retail Sales on Thursday.
- This might determine the Fed’s future policy decisions, which, along with geopolitical developments, should provide a fresh directional impetus to the XAU/USD.
Technical Outlook: Gold price remains on track to surpass $2,448-2,450 hurdle and test all-time peak
From a technical perspective, the recent bounce from the 50-day Simple Moving Average (SMA) support favors bullish traders. Moreover, oscillators on the daily chart are holding in positive territory. That said, the lack of strong follow-through warrants some caution before positioning for any meaningful appreciating move. In the meantime, any subsequent move up is more likely to confront some resistance near the $2,448-2,450 region. Some follow-through buying should pave the way for a move towards challenging the all-time top near the $2,483-2,484 area touched in July. This is followed by the $2,500 psychological mark, which if cleared decisively will set the stage for a further near-term appreciating move.
On the flip side, the $2,412-2,410 horizontal resistance breakpoint now seems to protect the immediate downside ahead of the $2,400 round-figure mark. Any further decline might continue to attract dip-buyers and remain cushioned near the 50-day SMA support, currently pegged near the $2,373-2,372 region. The latter should act as a key pivotal point, below which the Gold price could slide to the late July low, around the $2,353-2,352 area, which now coincides with the 100-day SMA support. A convincing break below will shift the near-term bias in favor of bearish traders and prompt aggressive technical selling.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
