Gold price retreats from all-time high amid profit-taking, potential downside seems limited
|- Gold price struggles to capitalize on its intraday move up to a fresh all-time high.
- The risk-on environment prompts some profit-taking amid a slightly overbought RSI.
- September Fed rate cut bets keep the USD bulls on the defensive and lend support.
Gold price (XAU/USD) trims gains after touching a fresh record peak, around the $2,482-2,483 region during the Asian session on Wednesday and currently trades near the lower end of its daily range. The prevalent risk-on environment – as depicted by an extension of the uptrend across the global equity markets – prompts some intraday profit-taking amid a slightly overbought Relative Strength Index (RSI) on the daily chart. Apart from this, the pullback lacks any obvious fundamental catalyst and is likely to remain cushioned amid dovish Federal Reserve (Fed) expectations.
Investors now seem convinced that the US central bank would begin its rate-cutting cycle in September, which keeps the US Treasury bond yields depressed near a multi-month low. This, in turn, fails to assist the US Dollar (USD) to register any meaningful recovery from over a three-month trough touched earlier this week and should continue to act as a tailwind for the non-yielding Gold price. Hence, any subsequent slide might still be seen as a buying opportunity and remain limited. Traders now look to the US Industrial Production figures for short-term impetus.
Daily Digest Market Movers: Gold price is undermined by risk-on mood, Fed rate cut bets warrant caution for bears
- The recent comments by Federal Reserve officials reaffirmed expectations of an interest rate cut in September, which continues to drive flows toward the non-yielding Gold price.
- Fed Chair Jerome Powell said on Monday that inflation readings during the second quarter showed more progress was being made on bringing the pace of price increases to the target.
- San Francisco Fed President Mary Daly showed growing confidence that inflation is heading toward the central bank's goal and added that she expects a policy adjustment at some point.
- Fed Governor Adriana Kugler noted on Tuesday that downside risks to employment have become more balanced, and continued labor market rebalancing suggests inflation will move toward the target.
- Kugler further added that it would be appropriate to begin easing monetary policy later this year if economic conditions continue to evolve favorably and if the labor market cools too much.
- Traders are now pricing in multiple rate cuts by year-end, dragging the yield on the benchmark 10-year US government bond and the rate-sensitive 2-year Treasury yield to a multi-month low.
- Meanwhile, the US Dollar draws support from Tuesday's upbeat US Retail Sales data, which pointed to consumer resilience and bolstered economic growth prospects for the second quarter.
- The Census Bureau reported Retail Sales in the US remained unchanged in June and the previous month's revised higher to show a growth of 0.3% as compared to the 0.1% reported originally.
- This, along with an extension of a bullish run across the global equity markets, might hold back traders from placing fresh bullish bets around the safe-haven XAU/USD and cap gains.
Technical Analysis: Gold price seems poised to appreciate further while above $2,430-2,425 resistance-turned-support
From a technical perspective, the overnight sustained breakout through the $2,425-2,430 supply zone and a subsequent move beyond the $2,450 area, or the previous all-time peak, could be seen as a fresh trigger for bullish traders. That said, oscillators on the daily chart have just started moving in overbought territory and warrant some caution before positioning for additional gains. Hence, any further move-up is more likely to face some resistance and pause near the $2,500 psychological mark.
On the flip side, any meaningful slide below the $2,450 area might now be seen as a buying opportunity and remain limited near the $2,430-2,425 resistance breakpoint, now turned support. A convincing break below the latter, however, might prompt some technical selling and drag the Gold price to the $2,400 mark. Some follow-through selling below the $2,390 area could pave the way for deeper losses toward testing the next relevant support near the $2,360 region.
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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