Gold price struggles to gain ground amid risk-on mood; potential downside seems limited
|- A combination of supporting factors assists the Gold price to attract buyers for the second successive day.
- The USD remains depressed amid the September Fed rate cut bets and acts as a tailwind to the XAU/USD.
- Geopolitical risks further lend support to the safe-haven precious metal, though bulls remain on the sidelines.
Gold price (XAU/USD) struggles to capitalize on the early European session uptick to levels beyond the $2,400 mark, though manages to hold in positive territory for the second straight day on Monday. The US Personal Consumption Expenditures (PCE) Price Index data released on Friday showed that inflation rose modestly in June and lifted bets for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle. This leads to a further decline in the US Treasury bond yields, which, in turn, keeps the US Dollar (USD) bulls on the defensive and acts as a tailwind for the non-yielding yellow metal.
Apart from this, geopolitical risks stemming from conflicts in the Middle East offer additional support to the safe-haven Gold price. The upside, however, remains capped in the wake of the upbeat mood across the global equity markets, which tends to undermine demand for the traditional safe-haven XAU/USD. Traders also prefer to wait for the outcome of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday. This, along with key US macro data scheduled at the start of a new month, including the Nonfarm Payrolls (NFP) report, will provide a fresh impetus to the commodity.
Daily Digest Market Movers: Gold price traders seem non-committed amid mixed fundamental cues
- A tame US inflation data reaffirmed market expectations that the Federal Reserve (Fed) will cut interest rates in September and drive flows towards the non-yielding Gold price higher on Friday.
- The US Commerce Department's Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index edged 0.1% higher last month after being unchanged in May.
- Over the past 12 months through June, the PCE Price Index eased slightly from 2.6% in the previous month and was up 2.5%, matching consensus estimates and adding to signs of easing price pressures.
- The core PCE Price Index, which excludes volatile food and energy prices and is the Fed's preferred inflation gauge, showed a monthly increase of 0.2% in June and the yearly rate held steady at 2.6%.
- The improving inflation landscape dragged the yield on the benchmark 10-year note yields to a nearly two-week low on Monday, which continues to undermine the US Dollar and benefits the XAU/USD.
- The Golan Heights attack on Saturday has raised worries of an all-out war between Israeli forces and Hezbollah in Lebanon, which further underpins demand for the safe-haven precious metal.
- A strong rally across the global equity markets might keep a lid on any runaway rally for the commodity ahead of the crucial two-day FOMC monetary policy meeting, starting on Tuesday.
- Investors this week will further take cues from the Bank of Japan decision on Wednesday, which will be followed by the Bank of England meeting on Thursday and important US macro releases.
Technical Analysis: Gold price fails to build on the intraday positive move beyond the $2,400 round figure
From a technical perspective, the recent repeated failures to find acceptance below the 50-day SMA and the subsequent bounce warrant some caution for bearish traders amid neutral oscillators on the daily chart. Bulls, however, struggle to capitalize on the Asian session uptick to levels beyond the $2,400 mark, making it prudent to wait for strong follow-through buying before confirming that the Gold price has bottomed out.
In the meantime, momentum above the $2,400 round figure is likely to confront some resistance near the $2,412 area ahead of last week's swing high, around the $2,432 region. A sustained strength beyond the latter will suggest that the corrective decline from the all-time peak touched earlier this month has run its course and set the stage for additional gains. The Gold price might then climb to the $2,469-2,470 intermediate resistance and challenge the record peak, around the $2,483-2,484 zone.
On the flip side, weakness below the $2,380 level might continue to attract buyers near the 50-day SMA, currently pegged near the $2,360-2,359 region, and remain limited. A sustained breakdown through the said support, however, will be seen as a fresh trigger for bearish traders and drag the Gold price to the next relevant support near the $2,325 area. The downward trajectory could extend further towards testing the $2,300 round-figure mark for the first time since late June.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.06% | -0.06% | -0.03% | 0.02% | -0.47% | 0.03% | -0.15% | |
| EUR | 0.06% | 0.00% | 0.03% | 0.13% | -0.40% | 0.10% | -0.10% | |
| GBP | 0.06% | 0.01% | 0.04% | 0.14% | -0.39% | 0.10% | -0.09% | |
| CAD | 0.03% | -0.03% | -0.03% | 0.11% | -0.43% | 0.07% | -0.12% | |
| AUD | -0.03% | -0.06% | -0.06% | -0.03% | -0.47% | 0.02% | -0.16% | |
| JPY | 0.51% | 0.46% | 0.44% | 0.47% | 0.48% | 0.50% | 0.36% | |
| NZD | -0.02% | -0.10% | -0.09% | -0.06% | -0.03% | -0.49% | -0.19% | |
| CHF | 0.16% | 0.10% | 0.10% | 0.13% | 0.23% | -0.31% | 0.19% |
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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