- Gold price attracts some dip-buying on Thursday after the overnight post-US CPI decline.
- Persistent geopolitical risks and Fed rate cut bets continue to offer support to the metal.
- A modest USD uptick and a positive risk tone could act as a headwind for the XAU/USD.
Gold price (XAU/USD) registered losses on Wednesday as investors scaled back their expectations for more aggressive policy easing by the Federal Reserve (Fed) following the release of the US consumer inflation figures. That said, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, along with growing acceptance for an imminent start of the Fed's rate-cutting cycle, assist the metal to regain positive traction on Thursday.
Meanwhile, reduced bets for a 50 basis points (bps) Fed rate cut in September led to a modest recovery in the US Treasury bond yields. This, in turn, allows the US Dollar (USD) to build on the previous day's post-US CPI recovery from the vicinity of the monthly low. Apart from this, a generally positive tone around the equity markets might keep a lid on any further positive move for the non-yielding yellow metal ahead of key US macro releases later this Thursday.
Daily Digest Market Movers: Gold price lacks bullish conviction amid receding bets for bigger Fed rate cuts
- Data published on Wednesday showed that US consumer prices rebounded as anticipated in July and dashed hopes for a bigger interest rate cut by the Federal Reserve in September.
- In fact, the US Labor Department's Bureau of Labor Statistics (BLS) reported that the headline US CPI rose moderately, by 0.2% in July after falling 0.1% in the previous month.
- The annual increase in the CPI, however, slowed a bit and fell below 3% for the first time in nearly 3-1/2 years, suggesting continued progress towards the Fed's inflation goals.
- The core CPI, which excludes volatile food and energy prices, increased by 0.2% during the reported month and eased to 3.2% in the 12 months through July from 3.3% in June.
- According to the CME Group's FedWatch Tool, investors now see a 36% chance of a 50-basis point rate cut at the next FOMC meeting versus the 50% prior to the US CPI data.
- This triggered a late recovery in the US Treasury bond yields, which assisted the US Dollar in attracting some buyers at lower levels and weighed on the non-yielding yellow metal.
- The USD Index (DXY) gains some follow-through traction on Thursday and acts as a headwind for the commodity, though elevated geopolitical tensions continue to offer some support.
- Mediators are hoping to kick-start ceasefire negotiations between Israel and Hamas on Thursday amid the risk of an imminent Iranian attack on Israel within the next few days.
- Traders now look to the US economic docket – featuring Retail Sales, Weekly Initial Jobless Claims and regional manufacturing indices – for short-term opportunities.
Technical Outlook: Gold price seems poised to climb further, $2,430-2,425 pivotal support holds the key for bulls
From a technical perspective, the overnight swing low, around the $2,438 region, now seems to protect the immediate downside ahead of the $2,424 area, or the weekly trough touched on Monday. Some follow-through selling could make the Gold price vulnerable to weaken further below the $2,400 mark and test the 50-day Simple Moving Average (SMA) pivotal support, currently pegged near the $2,380 zone. A convincing break below the latter might expose the 100-day SMA, near the $2,360 region, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
Meanwhile, oscillators on the daily chart are holding in positive territory and support prospects for additional near-term gains. That said, any further move up is more likely to confront some resistance near the $2,471-2,472 region ahead of the $2,483-$2,484 area or the all-time peak touched in July. A subsequent rise beyond the $2,500 psychological mark will confirm a breakout through a one-month-old broader trading range and set the stage for a further near-term appreciating move.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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