- Gold is bouncing off support from a major Moving Average after an over 1.0% fall.
- Traders now await the Federal Reserve’s preferred inflation gauge for more guidance on Friday.
- A lower-than-expected result could see Gold rebound; the opposite for a higher-than-forecast reading.
Gold trades in the $2,360s per ounce on Friday after recovering from the 50-day Simple Moving Average (SMA), as technical traders scalp the bounce after the steep drop of the previous day. Gold sold off by over 1.0% on Thursday as it ran with the commodity pack lower, which declined as a group on global growth fears.
Gold accelerates sell-off after US GDP surprise
Gold bears were further emboldened on Thursday after the release of preliminary US Gross Domestic Product (GDP) growth data showed the American economy grew at an annualized rate of 2.8% in the second quarter, exceeding market expectations of 2.0% and doubling the 1.4% pace of growth in the prior period.
The data indicated the US economy is doing better than expected and that the Federal Reserve (Fed) may need to keep interest rates higher for longer to keep inflation under control. This, in turn, makes Gold, which is a non-interest-bearing asset, less attractive to investors.
Despite the GDP surprise, expectations for rate cuts remain intact. Markets continue to fully price in an interest reduction in the Federal Reserve’s September meeting and anticipate two more cuts by the end of the year.
Gold may be moved by Fed’s favorite inflation gauge
Gold could see more volatility on Friday after the release of June’s core Personal Consumption Expenditures (PCE) Price Index in the US, the Federal Reserve's preferred gauge of inflation. The data could further tone the outlook for interest rates in the US, which could impact the yellow metal.
The Fed is currently expected to cut interest rates by 0.25% in September, reducing them from an upper band of 5.50% to 5.25%. Two more 0.25% cuts are also seen as more than 50% likely before the end of the year, according to the CME FedWatch tool. The core PCE's last reading was 2.6% year-over-year in May, now economists expect it to fall to 2.5% in June as it edges ever closer to the Fed’s 2.0% target level. A deeper-than-expected decline would increase the probability of the Fed making further cuts to interest rates after September; the opposite is true of a higher-than-forecast result.
Technical Analysis: Gold finds support at 50-day SMA
Gold continues unfolding a new down leg within the widening range it has formed since May. It is in a sideways rather than directional market trend, which, given “the trend is your friend,” is likely to continue.
The down leg has met support at the 50-day SMA at $2,360 and bounced slightly. If it closes below the SMA, it will probably extend its decline to the next support level at the base of the widening range and the 100-day SMA at circa $2,320.
XAU/USD Daily Chart
The fact that the Moving Average Convergence Divergence (MACD) indicator has crossed below its signal line adds further bearish confirmation to the downward move currently unfolding. MACD tends to work particularly well at signaling price turns in sideways markets.
A break above the $2,483 all-time high would indicate the establishment of a higher high and suggest the possibility of a breakout to the upside and an extension of the longer-term uptrend.
Such a move might unlock Gold’s next upside target at roughly $2,555-$2,560, calculated by extrapolating the 0.618 Fibonacci ratio of the height of the range higher.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stabilizes near 1.0850 ahead of US PCE inflation data
EUR/USD clings to small daily gains at around 1.0850 during the European trading hours on Friday. The pair stays underpinned by the renewed US Dollar weakness, as risk sentiment rebounds ahead of the key US PCE inflation data.
GBP/USD stays firm above 1.2850, US PCE data awaited
GBP/USD is holding mild gains above 1.2850 in the first half of the day on Friday, helped by a broadly weaker US Dollar amid a risk reset. Following Thursday's US GDP report, market focus shifts to Personal Consumption Expenditures Price Index data for June.
Gold clings to gains near $2,370 as markets await key US data
Gold recovers modestly and trades at around $2,370 after finding support near $2,350 on Thursday. Traders now shift their focus toward the monthly release of the US PCE Price Index after Thursday’s second-quarter GDP.
Avalanche price sets for a rally following retest of key support level
Avalanche (AVAX) price bounced off the $26.34 support level to trade at $27.95 as of Friday. Growing on-chain development activity indicates a potential bullish move in the coming days.
US core PCE annual inflation seen lower in June, reinforcing the case of a Federal Reserve's cut
The United States will release June Personal Consumption Expenditures Price Index figures on Friday. The Federal Reserve’s favourite inflation gauge will be released by the US Bureau of Economic Analysis (BEA) at 12:30 GMT.