Gold price tumbles as US yields surge
|- Gold price drops 0.14%, trading at $2,397, influenced by higher US Treasury yields.
- US President Biden exits race and endorses VP Harris, creating political uncertainty and undermining Gold.
- Wall Street opens positively post-Biden’s announcement, US Dollar Index remains steady at 104.34.
Gold price extends its losses for the fourth straight day yet remains hovering around $2,400, capped by rising US Treasury bond yields. The Greenback stays firm as investors diggest news that US President Joe Biden exited the Presidential race and endorsed Vice President Kamala Harris, who would like to compete against former US President Donald Trump in the November 5 elections. The XAU/USD trades at $2,397, down 0.14%.
Wall Street began the week on a positive note, which could be seen as a positive signal after Biden’s decision. Meanwhile, the US 10-year benchmark note coupon edged up two basis points to 4.26%, a headwind for the precious metal.
Analyst at Stone X commented that Trump’s victory would be favorable to Gold due to his tax cuts proposals, less regulation, and a widened budget deficit. "Trump would be inflationary and potentially incendiary in geopolitical terms, while Harris' foreign affairs policy is as yet undefined so that favours gold for now, but not possibly in the longer term."
Meanwhile, traders are eyeing the release of the preliminary reading of Gross Domestic Product (GDP) figures for the second quarter alongside the Federal Reserve’s preferred gauge for inflation, the Core Personal Consumption Expenditure (PCE) Price Index.
The US Dollar Index (DXY), which tracks the currency's performance against six other currencies and is virtually unchanged at 104.34. This has kept Gold prices beneath the $2,400 mark.
Daily digest market movers: Gold price drops beneath key support at $2,400
- Gold traders eye the release of crucial economic data, like Durable Goods Orders, the release of the preliminary Q2 GDP number, and the Core PCE for June.
- Durable Goods Orders are expected to increase from 0.1% to 0.4% MoM
- The Gross Domestic Product for Q2 is foreseen to edge higher from Q1 2024, 1.4% to 1.9% QoQ, hinting the economy is accelerating as the year progresses.
- The Fed’s preferred measure for inflation, the Core PCE is expected to dip from 2.6% to 2.5% YoY.
- The latest Consumer Price Index (CPI) data revealed a continuation of the disinflation process in the United States (US), boosting Gold prices and increasing the likelihood that the Fed will cut interest rates beginning in September.
- December 2024 fed funds rate futures contract implies that the Fed will ease policy by 48 basis points (bps) toward the end of the year, down from 50 last Friday.
Technical analysis: Gold remains defensive, yet appears to have bottomed out
The Gold price extended its losses, pulling back from all-time peaks, yet Monday’s drop was minimal compared to Friday’s loss of more than 1.80%. Momentum favors buyers, as the Relative Strength Index (RSI) stands at bullish territory while also turning flat instead of pointing downwards.
For XAU/USD to extend its losses, sellers must keep spot prices below $2,400. In that event, the first support would be the 50-day Simple Moving Average (SMA) at $2,359. Once sellers clear the 100-day SMA at $2,315, further losses are seen before falling toward $2,300.
Otherwise, if XAU/USD stays above $2,400 and reclaims $2,450, that can pave the way to challenge the all-time high of $2,483 ahead of hitting $2,500.
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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