Market Data 
- Gold remains stable above $2,500, buoyed by Fed Minutes suggesting a possible rate cut at the next meeting.
- The US Dollar Index (DXY) falls 0.20% to 101.10, weakening the Greenback and supporting Gold prices.
- Investors focus on upcoming US economic data and Fed Chair Powell’s speech at the Jackson Hole Symposium on Friday.
Gold stayed firm above $2,500 for the third straight day after Minutes of the US Federal Reserve (Fed) opened the door for an interest rate cut at the upcoming September meeting, weakening the Greenback. The XAU/USD trades at $2,511, virtually unchanged.
Investors cheered the content of the Fed’s July meeting Minutes as Wall Street continued to trade in green territory. The Greenback tumbled sharply over 0.20%, as reflected by the US Dollar Index (DXY), which hovers around 101.10.
The Minutes revealed that most Fed participants said that “it would likely be appropriate to ease policy at the next meeting if data continued to come in as expected,” adding that the progress on inflation and the increase in the unemployment rate opened the door for a quarter or a percentage point rate cut at the July meeting.
Although Fed officials voted unanimously to hold rates unchanged at the July meeting, many officials saw rates as restrictive. Regarding the Fed’s dual mandate, risks have become more balanced, with most policymakers growing more concerned about achieving the maximum employment mandate, while inflation risks have diminished slightly.
In addition, traders will be eyeing a light economic docket, with the release of Initial Jobless Claims, S&P Global PMIs and housing data on Thursday.
On Friday, traders will watch Fed Chair Jerome Powell’s speech at the beginning of the Jackson Hole Symposium, hosted by the Kansas City Fed in Wyoming.
Daily digest market movers: Gold price is firm after FOMC Minutes
- Gold prices advanced as US Treasury bond yields slumped. The US 10-year Treasury note is down 1.5 basis points (bps) at 3.792%.
- Following the release of the last FOMC minutes, traders expect 102 basis points of easing, according to the Chicago Board of Trade (CBOT) December 2024 fed funds futures contract.
- US Initial Jobless Claims data for the week ending August 17 are expected to rise to 230K, up from 227K a week before.
- Business activity revealed by S&P Global is expected to show a slight decrease in the Services PMI from 55 to 54. The Manufacturing PMI is foreseen remaining unchanged at 49.6.
- Existing Home Sales are expected to grow from 3.89 million to 3.93 million.
Technical analysis: Gold price to test $2,550 once it clears $2,530
Gold’s daily chart suggests that the yellow metal is expected to rise further if buyers breach the all-time high at $2,531. Momentum suggests that bulls are in charge, as portrayed by the Relative Strength Index (RSI).
Therefore, XAU/USD first resistance would be the $2,550 area, followed by the $2,600 mark. Nevertheless, Gold’s weakness and the non-yielding metal could retrace below the $2,500 figure.
In that outcome, the next support would be the July 17 peak at $2,483, followed by the May 20 high at $2,450. Once cleared, the next stop would be the 50-day Simple Moving Average (SMA) at $2,395.
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.
