Gold price plunges as US Dollar bounces back
|- Gold price falls further to near $2,410 as US political uncertainty boosts US Dollar’s appeal.
- US President Joe Biden could drop his re-election bid due to medical conditions.
- The Fed is widely anticipated to begin reducing interest rates in September.
Gold price (XAU/USD) extends its losing streak for the third trading day, declining to near $2,410 in Friday’s early American session. The precious metal faces profit-booking after rallying to fresh all-time highs above $2,480 on Tuesday. The yellow metal has also been weighed down by a decent recovery in the US Dollar (USD) and bond yields amid growing speculation that the Republican Party will be victorious in the United States (US) Presidential elections later this year.
The expectations for Donald Trump returning as US President increased after an assassination attack on him. Meanwhile, increasing prospects that US President Joe Biden could drop his re-election bid due to medical conditions have also fuelled chances of Trump having a victory in the Presidential elections. Trump is known for favoring protectionist trade policies, which improves the US Dollar’s appeal.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back to near 104.30. A higher US Dollar makes investment in Gold an expensive bet for investors. 10-year US Treasury yields jump to 4.21%. Higher yields on interest-bearing assets increase the opportunity cost of holding an investment in non-yielding assets, such as Gold.
Daily digest market movers: Gold price slides further as US yields recover
- Gold price slides further to near $2,410 amid strong recovery in the US Dollar. However, the near-term appeal of Gold remains firm as investors see expectations for the Federal Reserve (Fed) to begin reducing interest rates in September as certain.
- Expectations for the Fed to initiate a move toward policy normalization in September rose as policymakers gained slight confidence that inflation has returned on its path to the central bank’s target of 2%. However, officials still want to see more soft inflation data to gain greater confidence in lowering interest rates.
- Market speculation for Fed rate cuts was boosted by the June Consumer Price Index (CPI) reading, which signaled that the disinflation process has resumed after stalling in the first half of the year. Annual headline and core CPI, which excludes volatile food and energy prices, decelerated at a faster-than-expected pace. Meanwhile, monthly headline inflation deflated for the first time in more than four years.
- Apart from easing price pressures, cooling US labor market conditions have also uplifted Fed rate-cut prospects. The Unemployment Rate rose to 4.1% in June, the highest since November 2021. On Thursday, individuals claiming jobless benefits for the first time were higher than expectations for the week ending July 12. The Initial Jobless Claims came in at 243K, higher than estimates of 230K and the former release of 223K.
- Due to the absence of top-tier US data on Friday, investors will focus on speeches from Fed policymakers: New York Fed Bank President John Williams and Atlanta Fed Bank President Raphael Bostic are due to speak during the New York session. Investors will focus on cues about when the Fed will start cutting interest rates.
US Dollar Price Today:
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.07% | 0.17% | 0.02% | 0.05% | 0.16% | 0.31% | 0.18% | |
| EUR | -0.07% | 0.11% | -0.03% | -0.05% | 0.09% | 0.25% | 0.11% | |
| GBP | -0.17% | -0.11% | -0.14% | -0.16% | -0.01% | 0.15% | -0.00% | |
| JPY | -0.02% | 0.03% | 0.14% | 0.02% | 0.15% | 0.31% | 0.16% | |
| CAD | -0.05% | 0.05% | 0.16% | -0.02% | 0.11% | 0.28% | 0.13% | |
| AUD | -0.16% | -0.09% | 0.01% | -0.15% | -0.11% | 0.16% | 0.00% | |
| NZD | -0.31% | -0.25% | -0.15% | -0.31% | -0.28% | -0.16% | -0.15% | |
| CHF | -0.18% | -0.11% | 0.00% | -0.16% | -0.13% | -0.01% | 0.15% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Technical Analysis: Gold price corrects from all-time highs near $2,480
Gold price slides further to near $2,410 in Friday’s European session. The precious metal weakens after failing to sustain above the crucial figure of $2,450. The near-term outlook of the Gold price remains firm as short-to-long-term Exponential Moving Averages (EMAs) are sloping higher.
The advancing trendline plotted from the February 14 low at $1,984.30 will be a major support for Gold bulls.
The 14-day Relative Strength Index (RSI) drops to 58.00, suggesting the upside momentum has stalled. However, the upside bias remains intact.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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