- Gold price manages to hold its neck above a multi-week low touched on Monday.
- Fed rate cut bets cap the attempted USD recovery and lend support to the metal.
- Traders now look to the US ADP report and ISM Services PMI for a fresh impetus.
Gold price (XAU/USD) came under renewed selling pressure on Tuesday and dropped to the $2,316-2,315 area, back closer to a multi-week low touched the previous day in the wake of a modest US Dollar (USD) strength. The attempted USD recovery from over a two-month low, however, lacked follow-through on the back of growing acceptance that the Federal Reserve (Fed) will start cutting interest rates later this year, bolstered by softer US macro data. The expectations keep the US Treasury bond yields depressed, which, in turn, is seen benefitting the non-yielding yellow metal during the Asian session on Wednesday.
Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East lift the safe-haven Gold price back closer to the 50-day Simple Moving Average (SMA). Despite a combination of supporting factors, the XAU/USD remains confined in a one-week-old trading range as investors seem reluctant to place aggressive directional bets and prefer to wait for the release of the crucial US monthly employment details, or the Nonfarm Payrolls (NFP) report on Friday. In the meantime, the US ADP report on private-sector employment and the US ISM Services PMI should provide some impetus later today.
Daily Digest Market Movers: Gold price draws support from softere USD, Fed rate cut bets
- The US Dollar staged a modest bounce from over a two-month low touched on Tuesday and exerted downward pressure on the Gold price, though dismal US macro data helped limit losses.
- The Job Openings and Labor Turnover Survey, or JOLTS report, showed that job openings fell more than expected, by 296K to 8.059 million in April, or the lowest in more than three years.
- This follows the disappointing release of the US ISM Manufacturing PMI on Monday, which showed a surprising weakness in business activity and pointed to signs of a cooling US economy.
- Meanwhile, there is a risk that the US economy might be softening more than anticipated cemented bets for a September rate cut by the Federal Reserve, dragging the US Treasury bond yields lower.
- The rate-sensitive two-year US government bond and the benchmark 10-year Treasury yield languish near a two-week low, capping the USD and lending support to the non-yielding yellow metal.
- Traders now look forward to Wednesday’s US economic docket, featuring the release of the ADP report on private-sector employment and the ISM Services PMI to grab short-term opportunities.
- The focus, however, remains glued to the official monthly employment data, popularly known as the Nonfarm Payrolls report, which will determine the next leg of a directional move for the XAU/USD.
Technical Analysis: Gold price needs to move above $2,350 hurdle for bulls to seize back control
From a technical perspective, the Gold price now seems to have found acceptance below the 50-day Simple Moving Average (SMA). Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for further losses. A subsequent slide below the multi-week low, around the $2,315-2,314 area touched on Tuesday, will reaffirm the bearish bias and drag the XAU/USD below the $2,300 mark, towards testing the $2,280 horizontal support. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent corrective decline witnessed over the past two weeks or so.
On the flip side, any meaningful upside now seems to confront stiff resistance near the $2,349-2,350 supply zone. The next relevant hurdle is pegged near the $2,360-2,364 area, which, if cleared decisively, should allow the Gold price to climb further towards the $2,385 intermediate hurdle en route to the $2,400 mark. The momentum could extend towards the $2,425 zone and eventually lift the XAU/USD to the $2,450 region, or the all-time peak touched in May.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
