- Gold price turns lower for the second straight day, though the downside seems limited.
- A positive risk tone is seen undermining the safe-haven metal ahead of the US CPI report.
- Geopolitical risks, bets for bigger Fed rate cuts and subdued USD demand to lend support.
Gold price (XAU/USD) ended in the red on Tuesday as bulls opted to take some profits off the table following the recent gains registered over the past three days and ahead of the key US inflation data. The commodity remains under some selling pressure for the second straight day on Wednesday, though fears about a wider Middle East conflict and dovish Federal Reserve (Fed) expectations should help limit any further losses.
The US macro data published on Tuesday suggested that inflation continues to moderate and supports prospects for deeper interest rate cuts by the Fed. This keeps the US Dollar (USD) bulls on the defensive near a one-week low and provides a modest lift to the non-yielding yellow metal. That said, a generally positive risk tone might cap gains for the safe-haven XAU/USD and warrant some caution for aggressive bullish traders.
Daily Digest Market Movers: Gold price is unlikely to witness any meaningful downfall amid Middle East tensions, Fed rate cut bets
- Gold price trades with modest losses for the second straight day on Wednesday, albeit lacking follow-through and remains well within striking distance of the all-time high touched in July.
- A Hamas official said on Tuesday that the group had decided not to participate in the talks because its leaders do not think the Israeli government has been negotiating in good faith.
- Iranian officials told Reuters that only a ceasefire deal in Gaza would hold Iran back from direct retaliation against Israel for the assassination of Hamas leader Ismail Haniyeh on its soil.
- The development increases the risk of a broader Middle East war and should act as a tailwind for the safe-haven metal amid bets for bigger interest rate cuts by the Federal Reserve.
- The US Bureau of Labor Statistics reported on Tuesday that the Producer Price Index (PPI) for final demand rose by 2.2% on a yearly basis in July, down from 2.7% in the previous month.
- On a monthly basis, the PPI increased 0.1%, while the core PPI (that excludes volatile food and energy components) missed estimates and remained flat during the reported month.
- The softer data provided more evidence of cooling inflation and opened the door for the Fed to begin its policy-easing cycle, triggering a fresh leg down in the US Treasury bond yields.
- Atlanta Fed President Raphael Bostic reiterated on Tuesday that he’ll likely be ready to cut by the end of the year, though he wants to see a little more data before supporting the move.
- The US Dollar languishes near its lowest level in over a week and could further benefit the XAU/USD as the focus now shifts to the closely-watched US Consumer Price Index (CPI).
- The headline CPI is anticipated to ease from the 3.0% YoY rate to 2.9% in July and the core CPI is seen coming in at 3.2% as compared to the 3.3% rise recorded in June.
- A weaker reading will further lift bets for a 50-basis points Fed rate cut in September and weigh on the Greenback, paving the way for further gains for the non-yielding yellow metal.
Technical Analysis: Gold price seems poised to surpass the record peak and climb further towards $2,500
From a technical perspective, the recent rally from the 50-day Simple Moving Average (SMA) support and positive oscillators on the daily chart favor bullish traders. Hence, any meaningful slide might still be seen as a buying opportunity and remain limited. The Gold price seems poised to retest the record high, around the $2,483-2,484 area, and aim to conquer the $2,500 psychological mark. A sustained strength beyond the latter will mark a fresh breakout through a broader trading range held over the past month or so and set the stage for a further near-term appreciating move.
On the flip side, the $2,450-2,448 resistance breakpoint now seems to protect the immediate downside, below which the Gold price could slide back to the weekly low, around the $2,424-2,423 region touched on Monday. The next relevant support is pegged near the $2,412-2,410 area ahead of the $2,400 round-figure mark. Failure to defend the said support levels might turn the XAU/USD vulnerable to challenge the 50-day Simple Moving Average (SMA) support near the $2,378-2,379 region. Some follow-through selling might shift the bias in favor of bearish traders and expose the 100-day SMA support, currently near the $2,358-2,357 area. This is closely followed by the late July low, around the $2,353-2,352 area, which if broken should pave the way for deeper losses.
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.