Gold price pullback from record highs beneath $2,450

Gold is down more than 0.50% amid anticipation of a September Fed rate cut.
US jobless claims exceed forecasts, suggesting economic slowdown and favoring lower rates.
US Dollar Index up 0.43% to 104.18; 10-year Treasury yields increase by 2.5 basis points to 4.187%.

Gold prices continued to drop on Thursday, though remaining at around familiar levels of $2,450 per troy ounce, as speculation that the Federal Reserve would lower borrowing costs at the September meeting grew. At the time of writing, the XAU/USD trades at $2,443 with losses of 0.20% as the Greenback stages a recovery, underpinned by elevated US Treasury yields.

US jobs data revealed by the US Bureau of Labor Statistics (BLS) showed that more people than expected are applying for unemployment benefits, indicating an economic slowdown. This, added to last week’s string of data showing that inflation is aiming towards the Fed’s 2% goal, is beginning to gather policymakers' attention.

The number of Americans filing new applications for unemployment benefits rose more than expected last week, but there has been no material shift in the labor market, according to data released by the Labor Department on Thursday.

Lastly, Federal Reserve officials had expressed that the central bank could be “closer” to lower borrowing costs as the dual mandate risks had become more balanced. However, the International Monetary Fund (IMF) said on Thursday that the Fed should not cut interest rates until late 2024.

Given the backdrop, Gold prices recorded an all-time high of $2,483, but buyers failed to cling to gains as investors booked profits. This, along with former US President Donald Trump’s rhetoric of imposing at least 60% tariffs on China’s products, spurred flows to the American dollar.

The US Dollar Index, which tracks the currency's performance against six other currencies, is up 0.43% at 104.18. US Treasury bond yields are also rising across the yield curve, with the 10-year Treasury note yielding 4.187%, up more than two and a half basis points (bps).

Daily digest market movers: Gold retreats as buyers take a breather close to $2,500

Weaker-than-expected US Consumer Price Index (CPI) data boosted gold prices above $2,400, as the increased likelihood of Fed rate cuts led to falling US Treasury bond yields.
US Initial Jobless Claims, as reported by the BLS, showed that the number of Americans filing for unemployment benefits in the week ending July 13 rose to 243K, above the estimated 230K, exceeding the previous week's reading of 223K.
December 2024 fed funds rate futures contract implies that the Fed will ease policy by 52 basis points (bps) toward the end of the year, up from 50 last Friday.

Gold technical analysis: XAU/USD tumbles beneath $2,460 as buyers take a breather

The Gold price is experiencing a pullback, hinting that traders are booking profits after rallying more than 8% during the last three weeks. Momentum remains bullish in the mid-term, but the Relative Strength Index (RSI) aims lower, which indicates that buyers are taking a respite before lifting the precious metal to higher prices.

In the short term, the XAU/USD is headed to the downside, and if it achieves a daily close below $2,450, that will pave the way to challenge $2,400. Further losses lie beneath, and XAU/USD could dive to the July 5 high at $2,392, followed by the psychological $2,350 mark.

Otherwise, if XAU/USD conquers $2,490, that can pave the way to print a new all-time high of $2,500.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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