Gold trades with modest losses below $2,400, downside potential seems limited

Gold price turns lower for the third straight day and is weighed down by a combination of factors.
The risk-on mood, rebounding US bond yields and a modest USD uptick undermine the XAU/USD.
Bets for a 50-bps Fed rate cut in September and geopolitical tensions should help limit the downside.

Gold price (XAU/USD) struggles to capitalize on the previous day's goodish rebound from the 50-day Simple Moving Average (SMA) support around the $2,365-2,364 region, or a one-week low and attracts some intraday sellers on Tuesday. The downtick is sponsored by the emergence of some US Dollar (USD) buying, bolstered by a pickup in the US Treasury bond yields, and the risk-on impulse, which drags the the safe-haven precious metal below the $2,400 mark.

That said, expectations for bigger interest rate cuts by the Federal Reserve (Fed) should keep a lid on the US bond yields and the Greenback. Furthermore, geopolitical risks stemming from the ongoing conflicts in the Middle East might further contribute to limiting the downside for the Gold price. This, in turn, warrants some caution before positioning for an extension of last week's downfall from the vicinity of the all-time peak amid absent relevant US economic releases.

Daily Digest Market Movers: Gold price attracts fresh sellers amid risk-on mood, rebounding US bond yields and USD

The US macro data released last week showed that business activity in the manufacturing sector contracted more sharply than expected in July and jobs growth slowed more than anticipated last month.
This sparks fear of a possible recession in the US and the prospects for a more aggressive policy easing by the Federal Reserve, which, in turn, triggered the recent steep decline in the US Treasury bond yields.
In fact, the yield on the benchmark 10-year US government bond slumped to its lowest level since mid-2023 as traders are now pricing in a near 100% chance of a 50-basis points Fed rate cut in September.
This, to a larger extent, overshadowed Tuesday's upbeat release of the US Services PMI, which improved to 51.4 in July from 48.8 in the previous month and surpassed consensus estimates for a reading of 51.
San Francisco Fed President Mary Daly said on Monday that a slowing job market isn't yet reason for alarm and reiterated that interest rates will come down to preserve the balance of full employment and price stability.
Meanwhile, Iran, Hamas and the Lebanese group Hezbollah pledged to retaliate against Israel for last week’s assassination of Hamas political chief Ismail Haniyeh in Tehran, further underpinning the safe-haven metal.
That said, the risk-on impulse, along with rebounding US Treasury bond yields and a modest US Dollar uptick, fails to assist the commodity in attracting meaningful buyers during the Asian session on Tuesday.

Technical Analysis: Gold price needs to break through 50-day SMA pivotal support for bears to seize near-term control

From a technical perspective, the overnight bounce reaffirmed strong support near the 50-day SMA, currently pegged near the $2,365-2,364 area. This should now act as a key pivotal point for short-term traders, which if broken decisively should pave the way for an extension of the recent pullback from the vicinity of the all-time peak. Some follow-through selling below last week's swing low, around the $2,353-2,352 region, will reaffirm the negative bias and drag the Gold price to the $2,342 zone, or the 100-day SMA. A convincing break below the latter might shift the near-term bias in favor of bearish traders and prompt aggressive technical selling.

On the flip side, the $2,430 level could offer some immediate resistance ahead of the $2,448-2,450 horizontal zone. The next relevant hurdle is pegged near the $2,468-2,469 region, above which the Gold price could aim to challenge the all-time top near the $2,483-2,484 area touched in July. The latter is followed by the $2,500 psychological mark, which if cleared decisively will set the stage for a further near-term appreciating move.

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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