- Gold price consolidates the previous day’s strong move up to a two-week high.
- Bets for a September rate cut by the Fed continue to lend support to the XAU/USD.
- The overnight rise in the US bond yields underpins the USD and caps the upside.
Gold price (XAU/USD) oscillates in a range during the Asian session on Friday and consolidates the previous day’s strong move up to a two-week high, around the $2,360-2,365 area. The near-term bias, meanwhile, seems tilted in favor of bulls amid the case for interest rate cuts from the Federal Reserve (Fed) this year. The expectations were reaffirmed by softer US economic data released on Thursday, which added to the recent signs of a slowing economy. This, along with a convincing breakout through the 50-day Simple Moving Average (SMA), favors bullish traders and suggests that the path of least resistance for the commodity is to the upside.
Meanwhile, the Bank of England’s (BoE) dovish outlook on Thursday lifted bets for an interest rate cut in August. Furthermore, the European Central Bank’s (ECB) decision to start cutting interest rates earlier this month and the Swiss National Bank’s (SNB) second rate cut of 2024 on Thursday further validate the near-term positive outlook for the non-yielding Gold price. That said, an uptick in the US Treasury bond yields and the underlying bullish tone across the global equity markets turn out to be key factors acting as a headwind for the safe-haven precious metal. Nevertheless, the XAU/USD remains on track to register gains for the second straight week.
Daily Digest Market Movers: Gold price could benefit from bets for two Fed rate cuts in 2024
- Disappointing US economic data released on Thursday reinforced market expectations that the Federal Reserve will start its easing program soon and lifted the Gold price to a two-week high.
- The US Department of Labor (DoL) reported that the number of Americans applying for unemployment insurance fell to 238K in the week ending June 15 compared to the 235K expected.
- Moreover, the Commerce Department’s Census Bureau said Housing Starts declined 5.2% to a seasonally adjusted annual rate of 982K units in May, and Building Permits fell 2.9% to 949K units.
- Adding to this, the Philadelphia Fed Manufacturing Index unexpectedly declined to 1.3 in June from 4.5 in the previous month, though it remained in positive territory for a fifth successive month.
- This comes on top of tepid US Retail Sales figures for May and signs of easing inflation, which keeps a September rate cut on the table and should lend support to the non-yielding yellow metal.
- The markets are also pricing in the possibility of another interest rate cut at the December policy meeting despite the Fed policymakers’ hawkish outlook, indicating only one rate cut this year.
- Minneapolis Fed President Neel Kashkari argued that the US economy has proven to be remarkably resilient and that it will probably take a year or two to get inflation back to the 2% target.
- Richmond Fed President Tom Barkin noted that the US central bank has sufficient firepower to address policy issues, but it will have to maintain a strict data-dependent approach.
- The US Treasury bond yields shook off softer US data and rose on Thursday in anticipation of new supply next week, pushing the US Dollar to the weekly top and capping gains for the XAU/USD.
- Investors now look forward to the release of flash PMI prints for cues about the health of the global economy, which should provide some impetus ahead of the US Existing Home Sales data.
Technical Analysis: Gold price seems poised to climb further, 50-day SMA breakout in play
From a technical perspective, the overnight sustained close above the 50-day SMA could be seen as a fresh trigger for bullish traders. This, along with the fact that oscillators on the daily chart have again started gaining positive traction, supports prospects for a further appreciating move. Hence, a subsequent move towards testing the next relevant hurdle, near the $2,378-2380 region, looks like a distinct possibility. The Gold price could eventually aim to reclaim the $2,400 round-figure mark.
On the flip side, the 50-day SMA, currently pegged near the $2,345-2,344 area, now seems to protect the immediate downside ahead of the $2,336-2,335 region. A convincing break below the latter might expose the $2,300 round figure and the $2,285 horizontal support. Some follow-through selling will set the stage for the resumption of the recent retracement slide from the all-time peak touched in May and drag the Gold price further towards the $2,254-2,253 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.
