Market Data 
- Gold price corrects further from the record high amid some follow-through USD buying.
- September Fed rate cut bets should cap the USD and help limit losses for the XAU/USD.
- The technical setup supports prospects for the emergence of dip-buying near $2,400.
Gold price (XAU/USD) prolongs its corrective decline from the record peak touched earlier this week and drifts lower for the third successive day on Friday. The US Dollar (USD) builds on the previous day’s solid recovery from over a four-month trough, led by the post-ECB slump in the shared currency, and is seen as a key factor exerting downward pressure on the commodity. The downfall could further be attributed to some profit-taking, especially after the recent rally of over 6.5% since the beginning of this month.
Meanwhile, the initial jobless claims data released from the US on Thursday provided further evidence that the labor market is softening. This, along with signs of easing inflationary pressures, sets the stage for a September interest rate cut from the Federal Reserve (Fed), which, in turn, should act as a tailwind for the non-yielding Gold price. Apart from this, geopolitical tensions and central bank demand should help limit the downside for the precious metal, suggesting that any further decline could be seen as a buying opportunity.
Daily Digest Market Movers: Gold price is pressured by a further USD recovery; Fed rate cut bets to limit losses
- The US Dollar builds on the previous day’s strong recovery from its lowest level since March 21 and drags the Gold price lower for the third successive day on Friday.
- The US Bureau of Labor Statistics (BLS) reported on Thursday that the number of Americans filing for unemployment benefits in the week ending July 13 rose to 243K.
- Additional details of the report revealed that the 4-week moving average swelled to the highest level in more than 2-1/2 years, pointing to a loosening labor market.
- This, along with ebbing inflation, paves the way for an imminent start of the Federal Reserve’s rate-cutting cycle, offsetting the upbeat US manufacturing data.
- In fact, the Philadelphia Fed Manufacturing Index remained in positive territory for a sixth straight month and rose to 13.9 from 1.3 in the previous month.
- Nevertheless, the CME Group’s FedWatch Tool indicates that markets are pricing in a 100% chance of a rate-cut in September and an additional two cuts by year-end.
- Meanwhile, former President Donald Trump said that Taiwan should pay the US for defense, raising doubts over the US commitment to defend Taiwan in the event of an attack by China.
- This comes on top of geopolitical tensions stemming from conflicts in the Middle East and the protracted Russia-Ukraine war, which should lend support to the XAU/USD.
Technical Analysis: Gold price needs to break below $2,390-2,385 support for bears to seize near-term control
From a technical perspective, any subsequent fall is likely to find decent support near the $2,413-2,412 area ahead of the $2,400 round-figure mark. This is followed by the $2,390-2,385 horizontal resistance breakpoint, now turned support, which, if broken decisively, might prompt some technical selling. The Gold price might then accelerate the downfall toward testing the 50-day Simple Moving Average (SMA) support, currently pegged near the $2,359-2,358 region. Sustained weakness below the latter could expose the 100-day SMA near the $2,311 zone, with some intermediate support near the $2,330-2,328 region.
On the flip side, the Asian session high, around the $2,445 area, now seems to act as an immediate hurdle, above which the Gold price could climb to the $2,469-2,470 region. Given that oscillators on the daily chart are still holding comfortably in positive territory, bulls might then aim to retest the all-time peak, near the $2,483-2,484 region, and conquer the $2,500 psychological mark.
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.
