Market Data 
- Gold price struggles to capitalize on the previous day’s strong rise of nearly 2%.
- The upbeat US labor market report underpins the USD and acts as a headwind.
- The risk-on impulse further caps gains, though Fed rate cut bets offer support.
Gold price (XAU/USD) rallied nearly 2% on Thursday and snapped a four-day losing streak in the wake of rising bets for bigger interest rate cuts by the Federal Reserve (Fed) in September. Apart from this, fears of a wider Middle East conflict turned out to be another factor that drove flows towards the safe-haven precious metal. The strong intraday positive move, meanwhile, seems rather unaffected by some follow-through US Dollar (USD) buying, which tends to undermine demand for the commodity.
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, shot to a fresh weekly high in reaction to the upbeat data, showing that unemployment benefits fell more than expected last week. The solid labor market report eased fears of an imminent recession, which pushed the US Treasury bond yields higher and offered some support to the buck. Adding to this, the risk-on impulse contributes to keeping a lid on the safe-haven Gold price during the Asian session on Friday.
Daily Digest Market Movers: Gold price lacks follow-through buying amid the upbeat market mood
- The markets have fully priced in a 25-basis points rate cut by the Federal Reserve in September and have been speculating on the possibility of a 50-bps rate cut, offering support to the Gold price.
- Adding to this, the assassination of Hamas chief Ismail Haniyeh in Tehran last week has raised the risk of retaliatory strikes by Iran on Israel and further benefited the safe-haven XAU/USD.
- The US data released on Thursday showed that there were 233K initial jobless claims in the week ending August 3 as compared to expectations for a 240K print and 249K in the previous week.
- The upbeat reading eased concerns about an economic downturn in the world’s largest economy, triggering a move higher in the US Treasury bond yields and lifting the US Dollar to the weekly top.
- Meanwhile, receding fears of a possible recession in the US boosted investors’ confidence and led to a strong relief rally in the US equity markets, which, in turn, capped gains for the precious metal.
- Traders, meanwhile, reacted little to the better-than-expected Chinese inflation figures, which showed that the headline CPI rose 0.5% over the year in July after reporting a 0.2% increase in June.
- This, however, was offset by the fact that China’s PPI extended a long stretch of declines witnessed since November 2022 and fell by the 0.8% YoY rate in July, at the same pace as seen in June.
Technical Analysis: Gold price seems poised to climb further towards the $2,448-2,450 resistance
From a technical perspective, the recent bounce from the 50-day Simple Moving Average (SMA) support and the subsequent move up favors bullish traders. Moreover, oscillators on the daily chart have again started gaining positive traction and suggest that the path of least resistance for the Gold price is to the upside. Hence, some follow-through strength towards the next relevant hurdle, near the $2,448-2,450 region, looks like a distinct possibility. The momentum could extend further towards challenging the all-time top near the $2,483-2,484 area touched in July. The latter is closely 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 $2,372-2,371 region. This should act as a key pivotal point, below which the Gold price could aim to retest last week’s swing low, around the $2,353-2,352 area. Failure to defend the said support levels might shift the bias in favor of bearish traders and expose the 100-day SMA support, around the $2,342 zone.
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.
