Market Data 
- Gold price gains some positive traction and snaps a three-day losing streak amid subdued USD demand.
- The US political development prompts some unwinding of the ‘Trump trade’ and weighs on the Greenback.
- September Fed rate cut bets further undermine the USD and further benefit the non-yielding XAU/USD.
Gold price (XAU/USD) attracts some buyers during the Asian session on Monday and for now, seems to have stalled a three-day-old corrective decline from the all-time peak touched last week. Against the backdrop of dovish Federal Reserve (Fed) expectations, US President Joe Biden’s exit from the presidential race prompts some investors to unwind some trades betting on a Trump victory. This, in turn, keeps the US Dollar (USD) bulls on the defensive and lends some support to the commodity.
Apart from this, worries about slowing Chinese economic growth, geopolitical risks stemming from the protracted Russia-Ukraine war and the ongoing conflicts in the Middle East further benefit the safe-haven Gold price. The XAU/USD, however, lacks follow-through buying as traders await the release of the US Personal Consumption Expenditures (PCE) Price Index data on Friday for cues about the Fed’s policy path, which will determine the near-term trajectory for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price bulls seem non-committed despite US political uncertainty, softer USD
- A combination of supporting factors assists the Gold price to attract some buyers on the first day of a new week and snap a three-day losing streak to sub-$2,400 levels, or a one-week low touched on Friday.
- The US Dollar comes under renewed selling pressure in reaction to US President Joe Biden’s exit from the presidential race on Sunday, which prompts investors to unwind some trades betting on a Trump victory.
- Vice President Kamala Harris solidified her position as the leading Democratic candidate in the Presidential race, though former President Donald Trump still remains a favorite in the betting market.
- Market participants, meanwhile, have fully priced in a September interest rate cut by the Federal Reserve, which contributes to keeping the USD bulls on the defensive and lends support to the XAU/USD.
- That said, the underlying bullish tone across the global equity markets cap gains for the safe-haven commodity as traders look to the US Personal Consumption Expenditures (PCE) Price Index data on Friday.
- The crucial inflation data will influence expectations about the Fed’s rate-cut path, which, in turn, will drive USD demand in the near term and provide a fresh directional impetus to the commodity.
- Furthermore, this week’s release of flash PMIs should provide cues about the health of the global economy and provide some impetus to the metal, allowing traders to grab short-term opportunities.
Technical Analysis: Gold price could accelerate corrective slide from YTD top once $2,390-2,385 support is broken
From a technical perspective, last week’s corrective slide from the all-time peak stalled ahead of the $2,390-2,385 horizontal support. The said area coincides with the 50% retracement level of the June-July rally and the 100-period Simple Moving Average (SMA) on the 4-hour chart, which, in turn, should now act as a key pivotal point for short-term traders. A convincing break below is likely to pave the way for deeper losses and drag the Gold price to 61.8% Fibo. level, around the $2,366-2,365 region, en route to the $2,352-2,350 zone. Some follow-through selling will expose the 78.6% Fibo. level, near the $2,334-2,334 area, before the XAU/USD eventually drops to the $2,300 mark.
On the flip side, any subsequent move up is likely to confront some resistance near the $2,417-2,418 zone, above which a bout of a short-covering has the potential to lift the Gold price to the $2,437-2,438 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and set the stage for a move towards challenging the all-time peak, around the $2,482 area touched on July 17, with some intermediate resistance near the $2,458 region.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
