- Gold price edges lower in Wednesday’s Asian session.
- The escalating Middle East geopolitical tensions and firmer Fed rate-cut expectations might cap Gold’s downside.
- JOLTS Job Openings and Fed Beige Book are due later on Wednesday.
The Gold price (XAU/USD) bounces off the multi-day lows but remains below the $2,500 barrier amid the renewed bid bias in the US Dollar (USD) on Wednesday. However, the ongoing geopolitical risks and imminent Federal Reserve (Fed) rate cuts might underpin the yellow metal in the near term.
Later on Wednesday, JOLTS Job Openings and Fed Beige Book will be released. Investors will closely monitor the highly-anticipated US August Nonfarm Payrolls (NFP) on Friday, which could determine the size and pace of the potential rate cut at the Federal Reserve's September policy meeting. If the report shows weaker-than-expected reading, this could fuel speculation about a US recession and faster Fed rate cuts. This, in turn, could further boost the precious metal as lower interest rates reduce the opportunity cost of holding non-yielding Gold.
Daily Digest Market Movers: Gold price loses ground amid stronger US Dollar
- "We see evidence that speculative positioning in gold is effectively maxed out for the time being. I think the level to which gold is seeing pressure from the rise in the dollar reflects our view on positioning," said Daniel Ghali, commodity strategist at TD Securities.
- The US ISM Manufacturing PMI rose to 47.2 in August from an eight-month low in July at 46.8. This figure was below the market consensus of 47.5.
- Traders raised the chance of a more aggressive half-point reduction to 39%, up from 31% before the US ISM Manufacturing PMI report, according to the CME Group’s FedWatch measure.
- The US JOLTS Job Openings are expected to be 8.10 million, down from 8.184 million in June.
- The US ISM Services PMI is projected to come in at 51.4 in August from 51.1 in July.
Technical Analysis: Gold price keeps the positive outlook in the longer term
The Gold price trades in negative territory on the day. The precious metal maintains a bullish trend on the daily chart as the price is above the key 100-day Exponential Moving Average (EMA) and reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline.
The crucial upside barrier for the yellow metal emerges at the $2,530-$2,540, representing the five-month-old ascending channel’s upper boundary and the all-time high. Sustained trading above this level could pave the way to the $2,600 psychological mark.
On the other hand, the immediate support level to watch is $2,470, the low of August 22. A breach of the mentioned level could see a downward move back towards $2,432, the low of August 15. Extended losses will see a drop to $2,377, the 100-day EMA.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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
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