- Gold price attracts buyers for the second straight day and refreshes weekly top on Wednesday.
- A softer risk tone and dovish Fed expectations continue to act as a tailwind for the XAU/USD.
- The USD climbs to a nearly two-week high and might cap gains ahead of global PMI releases.
Gold price (XAU/USD) gains some positive traction for the second straight day on Wednesday and recovers further from over a one-week low touched on Monday. The steady intraday ascent lifts the precious metal to a fresh weekly top and is sponsored by a generally weaker tone around the equity markets, which tends to benefit the traditional safe-haven asset. Apart from this, growing acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September lends additional support to the non-yielding yellow metal.
Meanwhile, the US Dollar (USD) has climbed to a nearly two-week low amid an uptick in the US Treasury bond yields and is likely to keep a lid on any further appreciating move for the Gold price. Traders might also prefer to wait for more cues about the Fed's policy path before placing fresh directional bets around the non-yielding yellow metal. Hence, the market focus will remain on the release of the Advance US Q2 GDP and the US Personal Consumption Expenditures (PCE) Price Index data on Thursday and Friday, respectively.
Daily Digest Market Movers: Gold price attracts some haven flows amid softer risk tone
- A modest slide in the US Treasury bond yields, along with a softer risk tone, assisted the Gold price to gain positive traction on Tuesday and move away from over a one-week low touched the previous day.
- The National Association of Realtors reported that US existing home sales fell 5.4% in June to a seasonally adjusted annual rate of 3.89 million units – the lowest since December and missing consensus estimates.
- The most recent survey from the Federal Reserve Bank of Richmond showed that manufacturing activity worsened in July and the composite manufacturing index fell to -17 in July from -10 in the previous month.
- US Vice President Kamala Harris secured the support of enough delegates to clinch the Democratic nomination, which prompted some unwinding of the 'Trump trade' and dragged the US bond yield lower.
- Investors, meanwhile, largely expect the US central bank to start lowering borrowing costs at its September meeting and have been pricing in the possibility of two more rate cuts by the end of this year.
- This, in turn, offers some support to the non-yielding yellow metal, though some follow-through US Dollar buying keeps a lid on any further appreciating move as traders await the key US macroeconomic data.
- The US Gross Domestic Product (GDP) report for the second quarter will be released on Thursday and will be followed by the crucial Personal Consumption Expenditures (PCE) Price Index data for June on Friday.
- This will provide fresh insight into the Fed's path for interest rates, which will play a key role in influencing the USD price dynamics and help in determining the next leg of a directional move for the XAU/USD.
- In the meantime, Wednesday's release of flash PMIs will be looked upon for cues about the health of the global economy and allow traders to grab short-term opportunities around the precious metal.
Technical Analysis: Gold price bulls now await a move beyond $2,417-2,418 resistance
From a technical perspective, this week's bounce from the $2,385 resistance breakpoint – now coinciding with the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 50% retracement level of the June-July rally – warrants caution for bearish traders. The said area should now act as a key pivotal point, which if broken decisively should pave the way for deeper losses. The Gold price might then slide to 61.8% Fibo. level, around the $2,366-2,365 region, en route to the $2,352-2,350 zone before eventually dropping to 78.6% Fibo. level, near the $2,334-2,334 area, and the $2,300 mark.
On the flip side, any subsequent move up is likely to confront some resistance near the $2,417-2,418 zone, above which a fresh bout of a short-covering move could lift the Gold price to the $2,437-2,438 region. Some follow-through buying beyond the latter will suggest that the recent downfall witnessed over the past week or so has run its course and shift the near-term bias back in favor of bullish traders. The momentum could then extend back towards retesting the all-time peak, around the $2,482 area touched on July 17, with some intermediate resistance near the $2,458 region.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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