- Gold price advances to a two-week top amid the emergence of fresh USD selling.
- Rising Fed rate cut bets keep the US bond yields depressed and weigh on the buck.
- Traders look to the US jobless claims for some impetus ahead of the NFP on Friday.
Gold price (XAU/USD) attracts some follow-through buying for the second straight day and climbs to a two-week top, around the $2,373 area during the Asian session on Thursday. Moreover, the near-term bias remains tilted in favor of bulls in the wake of bets that major central banks will lower borrowing costs to bolster economic activity. In fact, the Bank of Canada (BoC) on Wednesday lowered its benchmark rate for the first time in four years, from a more than two-decade high and signaled concern about slowing economic growth. Furthermore, the European Central Bank (ECB) is also expected to cut interest rates for the first time since March 2016 at the end of its June policy meeting later today.
Meanwhile, the markets are now pricing in a greater chance for an imminent rate cut by the Federal Reserve (Fed) amid signs of a slowdown in the US economy. The expectations keep the US Treasury bond yields depressed near the lowest level in over two months and fail to assist the US Dollar (USD) to build on its modest recovery gains registered over the past two days. This, along with persistent geopolitical tensions stemming from ongoing conflicts in the Middle East, continues to act as a tailwind for the safe-haven Gold price. Despite a combination of supporting factors, the upside for the XAU/USD seems limited as traders keenly await the release of the US Nonfarm Payrolls (NFP) report on Friday.
Daily Digest Market Movers: Gold price draws support from firming Fed rate cut bets, weaker USD
- Mixed US macro data released on Wednesday reaffirmed expectations that the Federal Reserve will start cutting interest rates later this year, dragging the US Treasury bond yields lower and benefiting the non-yielding Gold price.
- The Automatic Data Processing (ADP) reported that private sector employment in the US rose by 152K in May as compared to 173K anticipated and the previous month’s downwardly revised reading of 188K (192K reported originally).
- The Institute for Supply Management’s (ISM) Services PMI rose to 53.8 in May, registering its highest level since August and surpassing consensus estimates of 50.8, while the Prices Paid sub-component edged lower to 58.1 from 59.2.
- This, along with the softer US Personal Consumption Expenditures (PCE) Price Index on Friday, pointed to easing inflationary pressures and dragged the US Treasury bond yields lower, offering some support to the yellow metal.
- The benchmark 10-year US Treasury yield fell to a two-month low, at 4.28%, and the yield on the rate-sensitive 2-year US government bond slipped to 4.731% amid speculations that the official job data will fall short of expectations.
- The US Dollar did react positively to the data, though a further decline in the US Treasury bond yields offered support to the yellow metal and lifted it to a fresh weekly peak during the Asian session on Thursday.
- Traders now look forward to the release of the Weekly Initial Jobless Claims data from the US for some impetus, though the focus will remain glued to the US monthly employment details, or the Nonfarm Payrolls (NFP) on Friday.
Technical Analysis: Gold price might confront stiff hurdle and remain capped near the $2,400 mark
From a technical perspective, momentum beyond the $2,364 area, or last week’s swing high, could be seen as a fresh trigger for bullish traders. That said, mixed oscillators on the daily chart warrant some caution before positioning for any further gains. Hence, any subsequent move up is more likely to confront stiff resistance and remain capped near the $2,400 mark. Some follow-through buying, however, has the potential to lift the Gold price to the next relevant hurdle near the $2,425 zone en route to the $2,450 region, or the all-time peak touched in May.
On the flip side, any meaningful slide back below the $2,360 level might attract fresh buyers around the $2,340 horizontal zone. This should help limit the downside for the Gold price near the $2,315-2,314 area or the multi-week low touched on Tuesday. A convincing break below, however, will confirm a breakdown through the 50-day Simple Moving Average (SMA) and pave the way for deeper losses. the XAU/USD might then weaken further below the $2,300 round-figure mark and test the $2,280 support 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.
