Gold price flat lines above $2,450 level, remains on track to register modest weekly gains
|Most recent article: Gold retreats from chart resistance after release of upbeat US data
- Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces.
- Easing US recession fears boosts investors' confidence and caps the upside for the safe-haven metal.
- Geopolitical tensions and bets on an imminent start of the Fed’s rate-cutting cycle lend some support.
Gold price (XAU/USD) struggles to capitalize on the previous day's positive move and seesaws between tepid gains/minor losses heading into the European session on Friday. Thursday's upbeat US macro data eased fears about a sharp downturn in the world's largest economy and boosted investors' confidence, which, in turn, is undermining demand for the safe-haven metal. That said, rising geopolitical tensions in the Middle East, along with bets for an imminent start of the Federal Reserve's (Fed) policy-easing cycle, lend support to the XAU/USD.
In fact, the markets have fully priced in a 25 basis points (bps) rate cut at the upcoming FOMC policy meeting in September. The outlook, in turn, triggers a fresh leg down in the US Treasury bond yields and attracts fresh sellers around the US Dollar (USD), which turns out to be another factor acting as a tailwind for the Gold price. Traders now look to the US macro data – Building Starts, Housing Permits and the Preliminary Michigan Consumer Sentiment Index – for short-term opportunities. Nevertheless, the XAU/USD seems poised to register modest weekly gains.
Daily Digest Market Movers: Gold price traders remain on the sidelines amid mixed fundamental cues
- Persistent geopolitical tensions stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war assisted the safe-haven Gold price to regain some positive traction on Thursday.
- As a new round of Gaza ceasefire talks was underway in Doha, investors remained worried about how Iran would respond to the assassination of Hamas leader Ismail Haniyeh in Tehran last month.
- Russia said on Thursday it would beef up border defenses, improve command and control and send in additional forces after Ukraine's biggest attack on its sovereign territory since World War Two.
- The US macro data published on Thursday showed that Retail Sales rose more than expected in July and a still resilient labor market, easing fears of a sharp slowdown in the world's biggest economy.
- The US Census Bureau reported that the total value of sales at the retail level in the US rose 1% in July and sales ex-autos grew 0.4%, beating estimates for an increase of 0.3% and 0.1%, respectively.
- Another report by the US Department of Labor (DOL) revealed that there were 227K initial jobless claims in the week ending August 10, better than the 235K expected and 234K in the previous week.
- The markets were quick to react and are now pricing in a greater chance that the Federal Reserve will lower borrowing costs by just 25 basis points at its upcoming monetary policy meeting in September.
- This, in turn, triggered a fresh leg up in the US Treasury bond yields and assisted the US Dollar in attracting some meaningful buying, which, in turn, capped the upside for the non-yielding yellow metal.
- Atlanta Fed President Raphael Bostic said that he is open to a September rate cut as inflation cools and added that officials also needed to be conscious of their mandate of maintaining full employment.
- Separately, St. Louis Fed President Alberto Musalem noted that the time may be nearing when an adjustment to the restrictive policy may be appropriate as the balance of risk on inflation has shifted.
- The XAU/USD remains on track to register modest weekly gains as the focus shifts to the FOMC minutes, due next Tuesday and Fed Chair Jerome Powell's appearance at the Jackson Hole Symposium.
Technical Analysis: Gold price seems poised to climb beyond all-time peak and conquer $2,500 psychological mark
From a technical perspective, the overnight failure near the $2,470 resistance makes it prudent to wait for some follow-through buying before positioning for any further gains. Given that oscillators on the daily chart are holding in positive territory, the Gold price might then aim to surpass the all-time peak, around the $2,483-$2,484 area touched in July, and conquer the $2,500 psychological mark. A sustained strength beyond the latter will confirm a breakout through a one-month-old broader trading range and could be seen as a fresh trigger for bullish traders, setting the stage for a further near-term appreciating move.
On the flip side, the $2,447-2,445 horizontal zone now seems to protect the immediate downside ahead of the $2,430-2,429 area and the weekly low, around the $2,424 region. Some follow-through selling could make the Gold price vulnerable to weaken further below the $2,400 mark and test the 50-day Simple Moving Average (SMA) pivotal support, currently pegged near the $2,383 region. A convincing break below the latter might expose the 100-day SMA near the $2,363-2,362 area and the late July swing low, around the $2,353 zone. Failure to defend the said levels 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.
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