Gold price refreshes weekly top amid weaker risk tone, renewed USD selling
|- Gold price attracts buyers for the second straight day and refreshes weekly top on Wednesday.
- A softer risk tone and dovish Fed expectations continue to act as a tailwind for the XAU/USD.
- The USD pulls back from a two-week high and lends additional support ahead of global PMIs.
Gold price (XAU/USD) attracts some follow-through buying for the second successive day on Wednesday and recovers further from over a one-week low touched on Monday. The momentum lifts the precious metal to a fresh weekly top, around the $2,418 region during the Asian session and is sponsored by a combination of supporting factors. A generally weaker tone around the global equity markets drives some haven flows towards the commodity. Apart from this, a modest US Dollar (USD) pullback from a nearly two-week high set earlier today further benefits the yellow metal and contributes to the positive move.
Growing acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September, along with the US political development, prompts some intraday selling around the USD and acts as a tailwind for the Gold price. Traders, however, might refrain from placing aggressive directional bets and prefer to wait for more cues about the Fed's policy path. Hence, the focus remains glued to the Advance US Q2 GDP and the US Personal Consumption Expenditures (PCE) Price Index data, due on Thursday and Friday, respectively. In the meantime, the flash global PMIs will be looked upon for short-term impetus.
Daily Digest Market Movers: Gold price benefits from softer risk tone, Fed rate cut bets and modest USD downtick
- A modest slide in the US Treasury bond yields, along with a softer risk tone, assisted the Gold price to gain positive traction on Tuesday and move away from over a one-week low touched the previous day.
- The National Association of Realtors reported that US existing home sales fell 5.4% in June to a seasonally adjusted annual rate of 3.89 million units – the lowest since December and missing consensus estimates.
- The most recent survey from the Federal Reserve Bank of Richmond showed that manufacturing activity worsened in July and the composite manufacturing index fell to -17 in July from -10 in the previous month.
- US Vice President Kamala Harris secured the support of enough delegates to clinch the Democratic nomination, which prompted some unwinding of the 'Trump trade' and dragged the US bond yield lower.
- Investors, meanwhile, largely expect the US central bank to start lowering borrowing costs at its September meeting and have been pricing in the possibility of two more rate cuts by the end of this year.
- This, in turn, offers some support to the non-yielding yellow metal, though some follow-through US Dollar buying keeps a lid on any further appreciating move as traders await the key US macroeconomic data.
- The US Gross Domestic Product (GDP) report for the second quarter will be released on Thursday and will be followed by the crucial Personal Consumption Expenditures (PCE) Price Index data for June on Friday.
- This will provide fresh insight into the Fed's path for interest rates, which will play a key role in influencing the USD price dynamics and help in determining the next leg of a directional move for the XAU/USD.
- In the meantime, Wednesday's release of flash PMIs will be looked upon for cues about the health of the global economy and allow traders to grab short-term opportunities around the precious metal.
Technical Analysis: Gold price bulls looking to seize control, could aim to test $2,437-$2,438 resistance zone
From a technical perspective, this week's bounce from the $2,385 resistance breakpoint – now coinciding with the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level of the June-July rally – warrants caution for bearish traders. The said area should now act as a key pivotal point, which if broken decisively should pave the way for deeper losses. The Gold price might then slide to 61.8% Fibo. level, around the $2,366-2,365 region, en route to the $2,352-2,350 zone before eventually dropping to 78.6% Fibo. level, near the $2,334-2,334 area, and the $2,300 mark.
On the flip side, any subsequent move up is likely to confront some resistance near the $2,417-2,418 zone, above which a fresh bout of a short-covering move could lift the Gold price to the $2,437-2,438 region. Some follow-through buying beyond the latter will suggest that the recent downfall witnessed over the past week or so has run its course and shift the near-term bias back in favor of bullish traders. The momentum could then extend back towards retesting the all-time peak, around the $2,482 area touched on July 17, with some intermediate resistance near the $2,458 region.
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.
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