Gold price holds position near all-time highs due to dovish Fedspeak

Gold price appreciates due to the high likelihood of a rate-cut decision by the Fed in September.
Fed Governor Christopher Waller stated that the central bank is ‘getting closer’ to an interest rate cut.
Gold may limit its upside as US Treasury yields rebound.

Gold price (XAU/USD) edges higher to near $2,470 per troy ounce on Thursday, remaining close to record highs amid growing optimism that the Federal Reserve (Fed) will reduce rates in September. Lower interest rates make non-yielding assets like Gold more attractive to investors.

Federal Reserve officials have expressed increasing confidence that the pace of price increases is now more consistently aligning with policymakers' goals. On Wednesday, Fed Governor Christopher Waller said that the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden and he would like to see it continue,” per Reuters. Traders will likely observe the US weekly Initial Jobless Claims and the Philly Fed Manufacturing Index on Thursday, along with the Fed’s Lorie Logan speech.

According to CME Group’s FedWatch Tool, markets now indicate a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, up from 69.7% a week earlier.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against the six other major currencies, rebounds due to improved US Treasury yields. The DXY trades around 103.80, with yields on 2-year and 10-year US Treasury bonds standing at 4.45% and 4.17%, respectively, at the time of writing. This scenario may limit the upside of the Gold prices.

Daily Digest Market Movers: Gold edges higher due to dovish sentiment surrounding the Fed

The New York Times reported on Wednesday that former President Donald Trump, in a meeting with House Republicans last month, expressed support for tax reductions, lower interest rates, and increased tariffs. These measures could potentially be inflationary for the economy and weaken the Greenback, which may, in turn, boost the demand for dollar-denominated Gold.
During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote. However, Trump also indicated that if re-elected, he would allow Powell to complete his term if he continued to "do the right thing" at the Federal Reserve.
On Tuesday, Federal Reserve (Fed) Board of Governors member Dr. Adriana Kugler acknowledged that inflationary pressures have eased but emphasized that the Fed still needs additional data to justify a rate cut. Kugler indicated that if upcoming data does not confirm that inflation is moving toward the 2% target, it may be appropriate to maintain current rates for a while longer, per Reuters.
The US Retail Sales for June stayed mostly in line with expectations. Retail Sales in the United States held steady at $704.3 billion in June, after a 0.3% gain (revised from 0.1%) in May, and are in line with market expectations.
Fed Chair Jerome Powell mentioned on Monday that the three US inflation readings of this year "add somewhat to confidence" that inflation is on course to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may not be far off.

Technical Analysis: XAU/USD aspires toward $2,500

Gold price trades around $2,470 on Thursday. The daily chart analysis shows that the XAU/USD pair consolidates within an ascending channel, indicating a bullish bias. However, the 14-day Relative Strength Index (RSI) is positioned slightly below the 70 level, suggesting a confirmation of a bullish trend but also indicating an overbought situation of the asset. A correction can be expected in the short term.

The XAU/USD pair tests the upper boundary of the ascending channel around the $2,470 level. A breakthrough above this level could lead the pair to test the psychological level of $2,500.

On the downside, the nine-day Exponential Moving Average (EMA) at the $2,424 level could act as immediate support, followed by the lower boundary of the ascending channel at the $2,410 level. A break below the latter could exert downward pressure on the XAU/USD pair to navigate the area around the throwback support of the $2,290 level.

XAU/USD: Daily Chart

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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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