Gold dims, falls below $2,650 as US Dollar bounces back

Gold prices fall for the second consecutive day, down 0.6%, despite falling US Treasury yields and rising geopolitical risks.
The US Dollar Index rises as Fed Chair Powell signals two more 25 bps rate cuts for 2024, dampening Gold's momentum.
Despite recent losses, Gold remains up over 5.40% for September, marking its best monthly performance since March 2024.

Gold price retreats for the second consecutive day amid month-end flows favoring the Greenback despite falling US Treasury yields. Nevertheless, the golden metal is set to register monthly gains of over 5.40% in September, its best month since March 2024, when Bullion prices rose over 9%. The XAU/USD trades at $2,639, down over 0.6%.

Wall Street trades mixed as Federal Reserve (Fed) Chair Jerome Powell delivers a speech at the 66th NABE Annual Meeting. Powell disregarded a possible 50-basis-point (bps) rate cut in either of the central bank’s two remaining policy meetings. Powell said that if the economy evolves as expected, two more 25 bps cuts will be left in 2024.

The Greenback, as measured by the US Dollar Index (DXY), rises 0.15% to 100.56, a headwind for the non-yielding metal. A light economic docket in the US saw the Chicago National Activity Index, known as the Chicago PMI, improve for the third consecutive month yet remain in contractionary territory.

Geopolitical tensions remain high after Israel attacked Hezbollah’s headquarters in Lebanon, killing its leader in the attack. Although it warrants further upside in Gold prices, according to analysts, Bullion has failed to gain traction.

Meanwhile, China’s economy remains languishing, which has triggered a reaction from the government. The People’s Bank of China (PBoC) is adopting additional measures of stimulus to the economy, which has triggered flows toward its skyrocketing equities market.

Daily digest market movers: Gold price falls as Powell overshadows data

The Chicago Fed National Activity Index, also known as the Chicago PMI, improved for the third consecutive month, rising to 46.6 and surpassing both estimates and August’s data.
The latest Personal Consumption Expenditures (PCE) Price Index report was mixed. Headline inflation in August rose by 2.2% YoY, down from 2.5% and slightly below the consensus estimate.
Conversely, last week’s core PCE increased modestly as expected from 2.6% to 2.7% YoY for the same period.
Market participants have increased the odds of a 25 bps rate cut to 56.4%, up from 46.7% the previous session. The chances of a larger 50 bps cut are now at 43.6%, according to the CME FedWatch Tool.

XAU/USD technical analysis: Gold price slumps and hovers around $2,630

After Gold hit an all-time high of $2,685, it has retreated over 2%, which could extend the XAU/USD losses toward the $2,600 figure. Although short-term momentum favors bears, with the Relative Strength Index (RSI) aiming lower, Gold remains bullish.

Therefore, traders should be aware of this and capitalize on the short-term move, but they should also be aware that bulls remain in charge.

Once XAU/USD dropped below $2,650, the door opened to testing the daily September 18 high at $2,600. Once surrendered, the following support will be the September 18 low of $2,546, followed by the 50-day Simple Moving Average (SMA) at $2,503.

Conversely, If XAU/USD extends its rally past $2,650, the current YTD peak at $2,685 will be exposed, followed by the $2,700 mark. Up next would be the $2,750 level, followed by $2,800.

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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