Gold price loses its recovery momentum amid renewed US Dollar demand
|- Gold price trades on a weaker note on Tuesday amid the rebound in the USD.
- The hope for Fed rate cuts, rising geopolitical risks, and strong gold demand might cap the yellow metal’s downside.
- Investors await Fed’s Waller, Williams, Barr, Bostic, Collins, and Mester speeches later on Tuesday.
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Gold price (XAU/USD) loses traction on Tuesday after reaching a record high earlier. The lack of fresh catalysts in a quiet session in terms of top-tier economic data might limit the precious metal’s upside. Nonetheless, the renewed demand by higher bets on interest rate cuts from the US Federal Reserve (Fed), ongoing geopolitical tensions, and the strong demand stemming from central banks and Asian buyers might provide some support to the yellow metal.
Gold traders will take more cues from the Fedspeak, with the Fed’s Waller, Williams, Barr, Bostic, Collins, and Mester scheduled to speak later on Tuesday. The FOMC Minutes will be the highlight on Wednesday. Furthermore, the hawkish stance from Fed officials is likely to lift the Greenback and drag the USD-denominated Gold lower.
Daily Digest Market Movers: Gold price struggles to gain ground amid the USD recovery
- Gold reached a record high on Monday at $2,450, and silver prices moved toward 12-year highs. Gold has risen 18% this year, while silver has gained 35%.
- Fed Vice Chair Michael Barr said that the central bank “will need to allow our restrictive policy some further time to continue to do its work.”
- Fed policymaker Philip Jefferson, another permanent voting member of the Fed's rate-setting committee, said inflation was still easing, although nowhere near as quickly as he expected.
- Atlanta Fed President Raphael Bostic said that policy is restrictive and that it would take a while before the central bank gains confidence that inflation is headed to 2%.
- Investors see a 76% odd of rate cut from the Fed by 25 basis points (bps) in September and two cuts by the end of the year, according to the CME FedWatch Tool.
Technical Analysis: Gold price’s constructive outlook remains intact
Gold price posts edges lower on the day. According to the four-hour timeframe, the yellow metal keeps the positive stance unchanged as it holds above the key 100-period Exponential Moving Average (EMA) with an upward slope. The Relative Strength Index (RSI) stands in the bullish zone around 69.00, suggesting the support level is likely to hold rather than break.
Any follow-through buying could make another attempt at breaking above an all-time high of $2,450. Further north, the next hurdle is seen at the $2,500 psychological mark.
On the other hand, the resistance-turned support level of $2,420 acts as an initial support level for XAU/USD. The additional downside filter to watch is the $2,400 round number. The key contention level will emerge at the 100-period EMA at $2,355.
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 weakest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.15% | -0.04% | 0.19% | 0.63% | 0.36% | 0.58% | 0.15% | |
| EUR | -0.15% | -0.18% | 0.05% | 0.51% | 0.24% | 0.44% | 0.02% | |
| GBP | 0.03% | 0.17% | 0.23% | 0.67% | 0.41% | 0.61% | 0.19% | |
| CAD | -0.19% | -0.05% | -0.21% | 0.45% | 0.18% | 0.39% | -0.04% | |
| AUD | -0.64% | -0.50% | -0.68% | -0.45% | -0.27% | -0.04% | -0.49% | |
| JPY | -0.37% | -0.23% | -0.42% | -0.19% | 0.26% | 0.20% | -0.22% | |
| NZD | -0.58% | -0.44% | -0.62% | -0.39% | 0.06% | -0.22% | -0.43% | |
| CHF | -0.16% | -0.01% | -0.19% | 0.04% | 0.49% | 0.22% | 0.43% |
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).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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