- Dovish Fed expectations and geopolitical risks assist the Gold price to attract dip-buyers.
- Signs of stability in the equity markets might cap the metal amid a modest USD strength.
- Bears need to wait for a sustained break below the 50-day SMA before placing fresh bets.
Gold price (XAU/USD) attracts some dip-buyers near the $2,379-2,378 region on Wednesday and climbs to a fresh daily peak heading into the European session. The incoming softer US economic data suggested that the world's largest economy was slowing faster than initially expected. This, in turn, fueled speculations about bigger interest rate cuts by the Federal Reserve (Fed), which acts as a tailwind for the non-yielding yellow metal.
Apart from this, concerns about an economic slowdown in China and the risk of a further escalation of geopolitical tensions in the Middle East lend additional support to the safe-haven Gold price. That said, a goodish pickup in the US Dollar (USD) demand, bolstered by a further recovery in the US Treasury bond yields, along with a generally positive risk tone, might keep a lid on any meaningful appreciating move for the XAU/USD.
Daily Digest Market Movers: Gold price bulls remain on the sidelines amid modest USD strength, positive risk tone
- A global sell-off in the equity markets – triggered by fears of the US tipping into recession – seems to have eased amid some bargain buying and exert some pressure on the safe-haven Gold price on Wednesday.
- The US Treasury bond yields build on the overnight advance, which was their biggest rise since early June – and lend support to the US Dollar, which is further seen undermining the non-yielding yellow metal.
- Government data released on Tuesday showed that the US trade deficit fell by 2.5%, to $73.1 billion in June from $75.0 billion in May owing to a 1.5% rise in exports of aircraft and US-produced oil and gas.
- The markets are pricing in a 100% chance that the Federal Reserve will start lowering borrowing costs at the upcoming policy meeting in September and a near 70% probability of a 50-basis-point rate cut.
- This, in turn, should keep a lid on the US bond yields and the USD, which, along with geopolitical risks stemming from the ongoing conflicts in the Middle East, might act as a tailwind for the XAU/USD.
- Lebanese group Hezbollah launched a series of drone and rocket attacks against Israel on Tuesday in retaliation for Israel’s reported killings of a top Hezbollah commander and Hamas leader last week.
- The market might now move into a typical pattern of consolidation in the absence of any relevant macro data from the US and await the next major fundamental catalyst before placing fresh directional bets.
Technical Analysis: Gold price struggles to move back above $2,400, 50-day SMA pivotal support holds the key
From a technical perspective, any subsequent decline might continue to find some support near the 50-day Simple Moving Average (SMA), pegged near the $2,368-2,367 region. This is followed by last week's swing low, around the $2,353-2,352 zone and the $2,344 area, or the 100-day SMA. Sustained weakness below the latter will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. Given that oscillators on the daily chart have just started gaining negative traction, the Gold price might then accelerate the downfall towards challenging the $2,300 round figure.
On the flip side, recovery back above the $2,400 mark is likely to face some resistance near the overnight swing high, around the $2,418 region. Some follow-through buying could lift the Gold price beyond the $2,430 barrier, towards the next relevant hurdle near the $2,448-2,450 horizontal zone. The momentum could extend further towards the $2,468-2,469 region en route to the all-time peak, near the $2,483-2,484 area touched in July. Bulls might then aim to conquer the $2,500 psychological mark, which if cleared decisively will set the stage for a further near-term appreciating move.
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.
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