Market Data 
- Gold price extends the range-bound trading on Tuesday amid doubts over the Fed’s rate-cut path.
- Signs of easing inflation keep a September rate cut on the table and lend some support.
- A modest USD strength might cap the upside for the XAU/USD ahead of US Retail Sales.
Gold price (XAU/USD) struggles to gain any meaningful traction on Tuesday and oscillates in a narrow trading band, around the $2,320 region during the Asian session. Against the backdrop of the Federal Reserve’s (Fed) hawkish outlook last week, policymakers continue to argue in favor of only one rate cut in 2024. This remains supportive of elevated US Treasury bond yields and assists the US Dollar (USD) to attract some dip-buyers, which, in turn, caps the upside for the non-yielding yellow metal.
Gold price, however, remains confined in a familiar range held over the past week or so and below the 50-day Simple Moving Average (SMA), warranting some caution before placing aggressive directional bets. The incoming US macro data pointed to signs of easing inflationary pressures and fueled speculation that the Fed will cut interest rates twice this year, in September and in December. This might keep a lid on the Greenback and help limit any meaningful decline for the XAU/USD.
Daily Digest Market Movers: Gold price struggles to lure buyers amid Fed rate-cut uncertainty
- The emergence of some US Dollar dip-buying acts as a headwind for the Gold price on Tuesday, though any meaningful slide seems elusive in the wake of bets for two rate cuts by the Federal Reserve in 2024.
- The Fed projected only one interest rate cut this year as compared to three projected in March, allowing the US bond yields to recover a part of last week’s downfall and assisting the USD to regain positive traction.
- Moreover, Philadelphia Fed President Patrick Harker said on Monday that keeping rates where they are for a bit longer will get inflation down and mitigate upside risks, undermining the non-yielding yellow metal.
- Meanwhile, data released on Friday showed that US import prices fell for the first time in five months in May, which, along with weaker US consumer and producer prices, suggested that inflation in the US is subsiding.
- This keeps hopes alive for the first rate cut by the Fed in September and another in December, warranting some caution before positioning for the resumption of the commodity’s recent pullback from the all-time peak.
- Investors now look forward to Tuesday’s US economic docket – featuring the release of Retail Sales and Industrial Production data – for short-term trading opportunities later during the early North American session.
- Apart from this, speeches by a slew of influential FOMC members will play a key role in driving the USD demand, which, along with the broader risk sentiment, should provide some impetus to the precious metal.
Technical Analysis: Gold price bulls need to wait for a breakout through the 50-day SMA resistance
From a technical perspective, the $2,333-2,336 region is likely to act as an immediate hurdle ahead of the 50-day SMA support, currently pegged near the $2,344-2,345 region. This is followed by the $2,360-2,362 supply zone, which, if cleared decisively, might prompt some short-covering rally and lift the Gold price to the $2,387-2,388 intermediate hurdle en route to the $2,400 mark. A sustained strength beyond the latter will suggest that the recent corrective slide from the all-time top set in May has run its course and should allow the XAU/USD to retest the $2,450 region.
On the flip side, bearish traders need to wait for a sustained break and acceptance below the $2,300 mark before placing fresh bets around the Gold price. Some follow-through selling below the $2,285 horizontal support will confirm a breakdown and pave the way for deeper losses. The commodity might then accelerate the fall towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further and eventually drag the XAU/USD towards the $2,225-2,220 support en route to the $2,200 round-figure 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.
