- A combination of supporting factors pushes the Gold price to a two-week high on Thursday.
- The Fed’s dovish stance drags the US bond yields lower and continues to weigh on the USD.
- The risk-on mood caps gains as bulls move to the sidelines ahead of the US NFP on Friday.
Gold price (XAU/USD) seesaws between tepid gains/minor losses around the $2,450 area on Thursday and currently trades just below a two-week high touched during the Asian session. The near-term bias, meanwhile, seems tilted firmly in favor of bullish traders amid the prospects for an imminent start of the Federal Reserve’s (Fed) rate-cutting cycle, which tends to underpin the non-yielding yellow metal.
The bets were reaffirmed by the Fed’s relatively dovish outlook on Wednesday, which drags the US Treasury bond yields to a multi-month low and keeps the US Dollar (USD) bulls on the defensive. Apart from this, geopolitical tensions in the Middle East validate the positive outlook for the safe-haven Gold price. That said, a generally positive risk tone is seen acting as a headwind and capping the XAU/USD.
Daily Digest Market Movers: Gold price might continue to benefit from dovish Fed-inspired USD weakness
- The Federal Reserve decided to hold its benchmark interest rate steady in the 5.25%-5.50% range while acknowledging the recent progress on inflation and cooling in the labor market.
- Furthermore, Fed Chair Jerome Powell, speaking at the post-meeting press conference, signaled the likelihood of a rate cut in September if inflation stays in line with expectations.
- This comes on top of the disappointing release of the ADP report, which indicated a slowing in the labor market and wage growth, giving the Fed another reason to cut rates this year.
- The Automatic Data Processing (ADP) reported that private sector employment in the US rose 122K in July against the 150K expected and annual pay was up 4.8% year-over-year.
- The yield on the 10-year US government bond dived to its lowest level since February in reaction to the weak data and the Fed’s dovish outlook, prompting aggressive US Dollar selling.
- Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East further underpin demand for the safe-haven Gold price and lift it to a fresh two-week high on Thursday.
- The upside for the XAU/USD, however, could be limited by the risk-on impulse as traders now look to Friday’s release of the US Nonfarm Payrolls report for some meaningful impetus.
Technical Analysis: Gold price bulls have the upper hand while above the $2,412-2,413 resistance breakpoint
From a technical perspective, the overnight breakout through the $2,412-2,413 horizontal resistance comes on the back of the recent bounce from the 50-day Simple Moving Average (SMA) support. Moreover, the subsequent move beyond the $2,450 level, along with the fact that oscillators on the daily chart have been gaining positive traction, validates the near-term bullish outlook for the Gold price. Hence, some follow-through strength towards the next relevant hurdle near the $2,468-2,469 region, en route to the $2,483-2,484 zone, or the all-time peak touched in July, looks like a distinct possibility. The latter is followed by the $2,500 psychological mark, which if cleared decisively will be seen as a fresh trigger for bullish traders and pave the way for additional near-term gains.
On the flip side, the Asian session low, around the $2,437 area, now seems to protect the immediate downside ahead of the $2,432 region. Any further downfall could now be seen as a buying opportunity and remain limited near the $2,413-2,412 resistance breakpoint. That said, some follow-through selling, leading to a breakdown through the $2,400 mark, could make the Gold price vulnerable to test the $2,384-2,383 support zone. The downward trajectory could extend further towards challenging the 50-day SMA, currently pegged near the $2,363 region, en route to the $2,353 area, or last week’s swing low.
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.
