- Gold price remains confined in a familiar range held since the beginning of the current week.
- A positive risk tone caps the upside, though a combination of factors continues to lend support.
- Fed rate cut bets, along with geopolitical risks, should help limit any meaningful corrective slide.
Gold price (XAU/USD) holds steady above the $2,500 psychological mark during the Asian session on Thursday and remains close to the all-time peak touched earlier this week. Data released on Wednesday showed that US job growth over the past year to March was significantly weaker than initially estimated. Adding to this, the July FOMC meeting minutes showed that several officials were leaning toward an immediate interest rate cut. This reaffirmed bets for an imminent start of the Fed’s policy easing cycle in September, which battered the US Dollar (USD) to a fresh YTD low on Wednesday and continues to act as a tailwind for the non-yielding yellow metal.
Investors, however, are looking for more clarity if the not-so-strong US labor market makes the case for a larger interest rate cut next month. This puts more weight on Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the Gold price. In the meantime, the prevalent risk-on environment caps the safe-haven XAU/USD, though the lack of progress in a truce agreement between Israel and Hamas should help limit the downside. Traders now look to the flash global PMIs, which, along with the US macro data, might produce short-term opportunities.
Daily Digest Market Movers: Gold price is undermined by upbeat market mood, Fed’s dovish outlook to limit the downside
- The US Dollar dived to a fresh YTD low on Wednesday in reaction to data indicating that the labor market was not as strong as estimated and assisted the Gold price in reversing an intraday dip to sub-$2,500 levels.
- The preliminary annual benchmark review of employment data published by the US Bureau of Labor Statistics showed that US employers added 818,000 fewer jobs than were reported during the year through March.
- Furthermore, the minutes of the July 30-31 FOMC meeting revealed that a vast majority of officials backed the case for a rate cut in September, while some policymakers were leaning toward immediate action.
- The markets are now pricing in a 38% probability of a 50 basis points rate cut next month, up from 29% a day before, and about 100 bps worth of easing by the end of this year, underpinning the non-yielding metal.
- Meanwhile, a truce agreement between Israel and Hamas still seems elusive, which keeps the risk of a broader Middle East conflict on the table and turns out to be another factor lending support to the XAU/USD.
- Traders now look forward to the US economic docket – featuring the release of the Weekly Initial Jobless Claims and Existing Home Sales data – for short-term opportunities later during the North American session.
- The market focus, however, will remain on Fed Chair Jerome Powell’s speech on Friday to see if the significantly weaker-than-expected US job growth makes a strong case for a larger interest rate cut in September.
Technical Analysis: Gold price might continue to attract dip-buyers, $2,480 throwback holds the key for bullish traders
From a technical perspective, the range-bound price action witnessed since the beginning of this week could be categorized as a bullish consolidation phase before the next leg up. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, validating the near-term constructive outlook. Hence, a move back towards retesting the all-time peak, around the $2,531-2,532 area touched on Tuesday, looks like a distinct possibility. Some follow-through buying will reaffirm be seen as a fresh trigger for bulls and pave the way for an extension of the recent well-established uptrend.
On the flip side, any meaningful pullback might continue to attract some buyers near the $2,500 round figure. This should help the downside for the Gold price near the $2,480 resistance breakpoint. A convincing break below the latter might prompt some technical selling and drag the XAU/USD towards the $2,455-2,453 horizontal support en route to the $2,430 region. The corrective slide could extend further towards the 50-day Simple Moving Average (SMA), currently pegged near the $2,400 mark.
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.