Gold price trades with mild gains near $2,500 as investors await fresh drivers
|Most recent article: Gold price retreats amid falling US yields, buoyant US Dollar
- Gold price posts modest gains in Wednesday’s Asian session.
- The escalating Middle East geopolitical tensions and firmer Fed rate-cut expectations might support Gold price.
- JOLTS Job Openings and Fed Beige Book are due later on Wednesday.
The Gold price (XAU/USD) bounces off the multi-day lows but remains below the $2,500 barrier amid the renewed bid bias in the US Dollar (USD) on Wednesday. However, the ongoing geopolitical risks and imminent Federal Reserve (Fed) rate cuts might underpin the yellow metal in the near term.
Later on Wednesday, JOLTS Job Openings and Fed Beige Book will be released. Investors will closely monitor the highly-anticipated US August Nonfarm Payrolls (NFP) on Friday, which could determine the size and pace of the potential rate cut at the Federal Reserve's September policy meeting. If the report shows weaker-than-expected reading, this could fuel speculation about a US recession and faster Fed rate cuts. This, in turn, could further boost the precious metal as lower interest rates reduce the opportunity cost of holding non-yielding Gold.
Daily Digest Market Movers: Gold price recovers, but stronger USD might cap its upside
- China’s Caixin Services PMI declined to 51.6 in August from 52.1 in July, missing the market consensus of 52.2 in the reported period, by a wide margin.
- "We see evidence that speculative positioning in gold is effectively maxed out for the time being. I think the level to which gold is seeing pressure from the rise in the dollar reflects our view on positioning," said Daniel Ghali, commodity strategist at TD Securities.
- The US ISM Manufacturing PMI rose to 47.2 in August from an eight-month low in July at 46.8. This figure was below the market consensus of 47.5.
- Traders raised the chance of a more aggressive half-point reduction to 39%, up from 31% before the US ISM Manufacturing PMI report, according to the CME Group’s FedWatch measure.
- The US JOLTS Job Openings are expected to be 8.10 million, down from 8.184 million in June.
- The US ISM Services PMI is projected to come in at 51.4 in August from 51.1 in July.
Technical Analysis: Gold price keeps the positive outlook in the longer term
The Gold price trades in positive territory on the day. The precious metal maintains a bullish trend on the daily chart as the price is above the key 100-day Exponential Moving Average (EMA) and reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline.
The crucial upside barrier for the yellow metal emerges at the $2,530-$2,540, representing the five-month-old ascending channel’s upper boundary and the all-time high. Sustained trading above this level could pave the way to the $2,600 psychological mark.
On the other hand, the immediate support level to watch is $2,470, the low of August 22. A breach of the mentioned level could see a downward move back towards $2,432, the low of August 15. Extended losses will see a drop to $2,377, the 100-day EMA.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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
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