Gold price struggles for a firm intraday direction ahead of US PMI data
|- Gold price oscillates in a narrow trading band on Monday amid mixed fundamental cues.
- Rising bets for a September Fed rate cut weigh on the USD and lend support to the metal.
- Geopolitics and political uncertainty act as a tailwind, though rising bond yields cap gains.
Gold price (XAU/USD) struggles to gain any meaningful traction on Monday and oscillates in a narrow trading band below the $2,330 level during the early European session. Traders seem reluctant to place aggressive directional bets amid the uncertainty over the Federal Reserve's (Fed) rate-cut path, which, in turn, leads to subdued range-bound price action. The key US inflation data released on Friday reaffirmed market bets that the Fed will cut interest rates in September and again in December. That said, the recent hawkish comments by a slew of influential FOMC members suggested that the central bank is in no rush to cut interest rates.
Meanwhile, the US Dollar (USD) is seen extending the post-US PCE corrective pullback from a two-month peak and should act as a tailwind for the Gold price. Apart from this, persistent geopolitical tensions and the uncertainty over the final outcome of France's shock snap election lend some support to the safe haven. Meanwhile, the increasing odds of a Trump presidency raised worries about the imposition of aggressive tariffs, which could fuel inflation and trigger higher interest rates. This, in turn, pushes the US Treasury bond yields to a multi-week high and should cap any meaningful upside for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price bulls remain on the sidelines amid rising US bond yields
- A combination of diverging forces fails to provide any meaningful impetus to the Gold price and leads to subdued range-bound price action on the first day of a new week.
- Data published on Friday showed that inflation in May slowed to its lowest annual rate in more than three years, lifting bets for a rate cut by the Federal Reserve in September.
- The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index edged lower to 2.6% on a yearly basis in May from 2.7% in April.
- The core PCE Price Index, which excludes volatile food and energy prices, decelerated from 2.8% in April to 2.6% in May, marking the lowest annual rate since March 2021.
- The US Dollar retreats sharply from a nearly two-month peak in reaction to the in-line inflation data and drops to a multi-day low on Monday, lending support to the commodity.
- The first round of France's parliamentary election on Sunday provided little clarity on whether the far-right party will be able to form a government after next Sunday's run-off.
- Moreover, President Joe Biden's disastrous debate with Republican opponent Donald Trump adds to the political uncertainty amid geopolitical risks and lends support to the XAU/USD.
- Meanwhile, an official survey showed on Sunday that China's manufacturing activity fell for the second straight month in June, and services activity slipped to a five-month low.
- However, the latest data released on Monday revealed that China's Caixin Manufacturing PMI unexpectedly edged higher from 51.7 to 51.8 in June against the 51.2 expected.
- Meanwhile, the recent hawkish comments by influential FOMC members raise uncertainty about the Fed's rate-cut path, leading to a further rise in the US Treasury bond yields.
- Richmond Fed President Thomas Barkin said on Friday that he will proceed deliberately on monetary policy as services and shelter price-setters still have room to push prices higher.
- San Francisco Fed President Mary Daly told CNBC that cooling inflation shows that the monetary policy is working, but it’s too early to tell when it will be appropriate to cut rates.
- This, in turn, should keep a lid on any meaningful appreciating move for the non-yielding yellow metal ahead of this week's key US macro releases, including the NFP report on Friday.
- In the meantime, traders will take cues from the release of the US ISM Manufacturing PMI, which, along with the broader risk sentiment, should influence the commodity on Monday.
Technical Analysis: Gold price remains below 50-day SMA pivotal resistance near the $2,338-40 area
From a technical perspective, Friday’s failure near the 50-day Simple Moving Average (SMA) support breakpoint, now turned resistance, favors bearish traders. That said, the lack of any follow-through selling, along with neutral oscillators on the daily chart, warrants some caution before positioning for any further depreciating move.
Meanwhile, the 50-day SMA, currently pegged around the $2,338-2,340 region, might continue to act as an immediate hurdle and a key pivotal point. A sustained strength beyond has the potential to lift the Gold price back towards the $2,360-2,365 supply zone, which if cleared, should allow bulls to reclaim the $2,400 round-figure mark. The momentum could extend further towards challenging the all-time peak, around the $2,450 area touched in May.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.22% | -0.12% | -0.01% | 0.10% | 0.09% | 0.00% | -0.10% | |
| EUR | 0.22% | 0.12% | 0.20% | 0.32% | 0.32% | 0.22% | 0.13% | |
| GBP | 0.12% | -0.10% | 0.11% | 0.22% | 0.22% | 0.11% | 0.03% | |
| CAD | 0.01% | -0.21% | -0.11% | 0.11% | 0.11% | 0.00% | -0.10% | |
| AUD | -0.10% | -0.33% | -0.22% | -0.12% | -0.01% | -0.11% | -0.21% | |
| JPY | -0.10% | -0.31% | -0.22% | -0.11% | 0.03% | -0.10% | -0.19% | |
| NZD | 0.00% | -0.22% | -0.12% | 0.01% | 0.11% | 0.11% | -0.08% | |
| CHF | 0.08% | -0.14% | -0.03% | 0.08% | 0.21% | 0.19% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
On the flip side, any meaningful slide is likely to find some support near the $2,300 round-figure mark ahead of the $2,285 horizontal zone. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day SMA, currently near the $2,259 area. The XAU/USD could eventually drop to the $2,225-2,220 region en route to the $2,200 round-figure 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.
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