- Gold touches $2,432, then stabilizes under $2,400, pressured by US 10-year yields at 4.274%.
- FedWatch Tool forecasts 100% chance of a 25 bps rate cut in September, bolstering gold.
- India slashes import tax on precious metals, spurring demand; key US GDP, PCE data due Thursday.
Gold price is virtually unchanged late in the North American session, set to end the day around familiar levels below $2,400 after hitting a daily high of $2,432. Risk-aversion and rising US Treasury bond yields seem to have capped the non-yielding metal rally, which usually retreats as investors flock to US Treasuries.
Bullion traders lifted spot prices while US Treasury bond yields edged lower ahead of a US five-year note sale auction. Afterward, the US 10-year Treasury note coupon rose two basis points to 4.274%, a headwind for the golden metal. Meanwhile, the buck remains on the back foot, yet losses are trimmed as measured by the US Dollar Index (DXY). The DXY edges down 0.08% at 104.38.
Risk-off mood helped Gold buyers lift spot prices to a three-day peak, as traders had fully priced in a 25-basis point (bps) rate cut by the Federal Reserve at the upcoming September meeting.
The CME FedWatch Tool shows odds of a quarter of a percentage point cut at 100%, while data from the Chicago Board of Trade (CBOT) sees market participants estimate 53 bps of easing for 2024, via data of the December 2024 fed futures rate contract.
Data-wise the US economic docket revealed the Goods Trade Balance for July printed a narrower deficit than expected. Meanwhile, business activity as measured by the Purchasing Managers Index (PMI) report revealed by S&P was mixed, with manufacturing contracting for the first time since first time since December 2023.
Precious metals were also boosted by India’s decision to cut import taxes from 15% to 6%.
Traders brace for the release of the first reading of the Gross Domestic Product (GDP) for Q2 2024 in the United States (US) on Thursday. This would be followed by the release of the Fed’s preferred gauge for inflation, the Personal Consumption Expenditure (PCE) Price Index figures for June.
Daily digest market movers: Gold price remains glued to the $2,400 figure
- S&P Global revealed that Services and Composite PMIs for July exceeded estimates, coming at 56 and 55, with the former exceeding expectations of 55.
- The S&P Global Manufacturing PMI dropped from 51.6 to 49.5, missing the consensus of 51.7.
- The US Goods Trade Balance Advanced for June came at $-96.0 billion, below the $-98.0 billion and less than May’s $-99.4 billion.
- The Gross Domestic Product (GDP) for Q2 is projected to rise from 1.4% in Q1 2024 to 1.9% quarter-over-quarter (QoQ), indicating that the economy is accelerating as the year progresses.
- The Fed’s preferred measure of inflation, the Core PCE, is expected to dip from 2.6% to 2.5% year-over-year (YoY).
Technical analysis: Gold price falls below Tuesday’s high
After forming a ‘bullish haram,’ Gold prices hit a three-day peak above $2,430 but have retreated below the July 23 high of $2,412, hinting at buyers' lack of strength. A daily close below the latter could expose XAU/USD to further selling pressure, though US data would drive price action on Thursday and Friday.
The Relative Strength Index (RSI) is bullish, although the slope has turned flat, indicating buyers' and sellers' lack of direction and commitment.
XAU/USD needs to clear Wednesday’s peak at $2,430 for a bullish continuation. Once surpassed, the next resistance would be $2,450 before challenging the all-time high of $2,483. Up next would be the $2,500 figure.
Conversely, if XAU/USD tumbles below the July 22 low of $2,384, a deeper correction is on the cards. The next 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.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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