Market Data 
- Gold price holds gains to near $2,400, driven by growing speculation for Fed rate cuts in September.
- Softer-than-expected US inflation for June indicated that price pressures are on course to return to 2%.
- Investors await Fed Powell’s speech and the US Retail Sales data for June.
Gold price (XAU/USD) rebounds to near $2,400 in Monday’s European session after a modest correction from seven-week high of $2,424 on Thursday. The precious metal edged lower as the US Dollar gained ground after an assassination attack on former United States (US) President Donald Trump improved the US Dollar’s appeal.
The sniper attack on Trump has increased his odds of winning the US Presidential elections later this year. This has led to investors pouring funds into the US Dollar, as Donald Trump is known for favoring protective trade policies, which is a favorable scenario for the Greenback. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gains firm footing near 104.00.
The higher US Dollar makes the Gold price an expensive bet for investors. However, the near-term outlook of the US Dollar remains weak as the Federal Reserve (Fed) is widely anticipated to begin reducing interest rates from the September meeting.
Daily digest market movers: Gold price struggles to extend gains as US Dollar gains ground
- Gold price recovers after a hiatus in the uptrend near a seven-week high of $2,424, recorded on Thursday. However, the near-term outlook for the Gold price remains firm as US bond yields weaken. US Treasury yields fall as market expectations for the Fed to begin reducing interest rates from the September meeting have accelerated significantly.
- 10-year US Treasury yields edge higher to 4.20% but are close to an almost four-month low. Lower yields on interest-bearing assets reduce the opportunity cost of holding an investment in non-yielding assets, such as Gold.
- The bulging probability of Fed rate cuts is the outcome of easing US consumer inflation and cooling labor market strength. Last week, the US Consumer Price Index (CPI) report for June showed that price pressures decelerated at a faster pace than expected. Soft inflationary pressures boosted confidence that the disinflation process has resumed after a moderate reverse in the first quarter of this year. Also, the monthly headline CPI deflated for the first time in four years.
- This week, investors will majorly focus on the US Retail Sales data for June, which will be published on Tuesday. The Retail Sales report is expected to show that sales at retail stores remained unchanged after a meager growth of 0.1% in May.
- In Monday’s session, investors will focus on Fed Chair Jerome Powell’s speech at the Economic Club of Washington, scheduled at 16:30 GMT. In his latest comments at semi-annual Congressional testimony, Powell acknowledged some progress in inflation but reiterated that policymakers want to see inflation declining for months to gain confidence for interest rate cuts.
Technical Analysis: Gold price trades sideways near $2,400
Gold price trades in a tight range, slightly above $2,400. The precious metal seeks more cues about when the Fed will start reducing interest rates. The yellow metal exhibits a consolidation move for the last three months, ranging between $2,277-2,450.
The upward-sloping 20-day Exponential Moving Average (EMA) near $2,363 suggests that the overall trend is bullish.
The 14-day Relative Strength Index (RSI) rises above 60.00 for the first time in more than a month, suggesting more upside ahead due to the absence of signals such as oversold and divergence.
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.
