Market Data 
- Gold surges amid growing expectations of Fed rate cuts in September.
- US 10-year Treasury yield drops to 4.288%, while US Dollar Index falls below 105.00.
- Inflows into Gold ETFs support the metal, with eyes now on US June inflation data and economic indicators.
Gold price escalated on Wednesday for back-to-back days amid growing speculation that the Federal Reserve (Fed) could begin to slash higher interest rates at the September meeting. Consequently, US Treasury bond yields and the Greenback fell, a tailwind for the golden metal. The XAU/USD trades at $2,372, up by more than 0.30%.
Falling US Treasury bond yields and a soft US Dollar bolstered the non-yielding metal. The US 10-year benchmark note coupon dropped one-and-a-half basis points (bps) to 4.288%, while the US Dollar Index (DXY) trended below the 105.00 mark, losing 0.06%.
In his appearance at the US House of Representatives, Fed Chair Jerome Powell repeated most of his remarks revealed at a US Senate committee on Tuesday. He acknowledged the progress on inflation, yet Powell stated the board is not confident that lowering rates will help prices reach the 2% goal.
Despite ongoing pullbacks, Gold remains underpinned by a second consecutive month of inflows into Gold exchange-traded funds (EFTs) in June, driven by additions to holdings by Europe and Asia-listed funds.
With Fed Chair Powell’s semi-annual testimony in the rearview mirror, investors eye the release of US June inflation figures on Thursday. That, Initial Jobless Claims and the University of Michigan Consumer Sentiment data will set Gold’s direction.
Daily digest market movers: Gold price escalates on Fed rate cut hopes
- US CPI is expected to decrease from 3.3% to 3.1% annually in June, while core inflation is projected to remain steady at 3.4% YoY.
- According to the consensus, Initial Jobless Claims for the week ending July 6 are expected to increase from 238K to 240K.
- July Consumer Sentiment is forecast to improve to 68.5, up from 68.2 in June, according to the consensus.
- Bullion prices retreated somewhat due to the People’s Bank of China’s (PBoC) decision to halt Gold purchases in June as it did in May. China held 72.80 million troy ounces of the precious metal at the end of June.
- According to data from the CME FedWatch Tool, investors are pricing in 71% odds of a Fed rate cut in September, up from 70% on Tuesday.
- December 2024 fed funds rate futures contract implies that the Fed will ease policy by 39 basis points (bps) toward the end of the year.
Technical analysis: Gold price consolidates around $2,370
Despite forming a bearish Harami candlestick pattern after breaching the Head-and-Shoulders neckline, Gold has resumed its ongoing uptrend yet remains shy of hitting weekly highs set on Monday at $2,391 a troy ounce.
Momentum shifted in favor of buyers as shown by the Relative Strength Index (RSI), which remains bullish above the 50-neutral line and aims upward.
Hence, the path of least resistance is to the upside. The XAU/USD first resistance would be the July 5 high at $2,392, followed by the $2,400 figure. A further upside is seen, with the next resistance lying at the year-to-date high of $2,450, ahead of the $2,500 mark.
Conversely, if XAU/USD slumps below $2,350, the golden metal might decline to the $2,300 level. If this support fails, the next demand zone would be the May 3 low of $2,277, followed by the March 21 high of $2,222.
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.
