Gold reaches all-tine high as traders await Fed rate cut

Gold price hits an all-time high of $2,465 on growing expectations of a Fed rate cut in September.
Trump’s potential election win fuels market volatility, driving investors to non-yielding assets.
Lower-than-expected inflation data and Powell’s dovish comments underpins Gold.

Gold price skyrockets to a new all-time high of $2,465 on Tuesday amid growing bets that the US Federal Reserve (Fed) will begin its easing cycle in September. This, along with increasing chances that former President Donald Trump would win November’s election, underpinned the yellow metal. The XAU/USD trades at $2465, gains more than 1.70%.

Last week’s lower-than-expected consumer inflation figures pushed non-yielding metal prices higher amid the Fed’s dovish pivot. The CME FedWatch Tool shows that the odds for a 25-basis point rate cut in September are 100%, with a minuscule part of economists foreseeing a 50 bps of easing.

Besides this, over-the-weekend political developments involving former President Trump sponsored a leg-up on the Golden metal. Trump’s Presidency will aim to increase tariffs and cut taxes, which will most likely increase the US budget deficit and generate inflationary pressures.

Meanwhile, Fed Chair Jerome Powell appeared at the Economic Club of Washington, where he commented that the economy performed well and added that the Fed will lower borrowing costs once it is confident that inflation is moving toward the 2% goal.

Data-wise, the US Census Bureau reported that Retail Sales in June were unchanged, as expected. However, excluding autos, sales rose sharply, exceeding forecasts.

Daily digest market movers: Gold climbs as traders ignore mixed US data

Weaker-than-expected US Consumer Price Index (CPI) data sponsored Gold’s leg-up above $2,400, as the odds for Fed rate cuts increased, as reflected by falling US Treasury bond yields.
US Retail Sales in June were flat at 0% MoM, as expected. Core sales expanded by 0.4% MoM, above the projected 0.1%.
June Export and Import Prices both decreased, with Export prices dropping -0.5% MoM, below the forecast of -0.1%. Import prices rose compared to May’s -0.2% decline, coming in at 0%, beneath the estimated 0.2% increase.
Meanwhile, the US Dollar Index (DXY), which tracks the Greenback against a basket of six currencies, is up by a minimal 0.02% at 104.27.
December 2024 fed funds rate futures contract implies that the Fed will ease policy by 53 basis points (bps) toward the end of the year, up from 50 last Friday.
Bullion prices retreated slightly due to the People's Bank of China (PBoC) decision to halt gold purchases in June, as it did in May. By the end of June, China held 72.80 million troy ounces of the precious metal.

Gold technical analysis: XAU/USD surged and extended rally as traders eye $2,500

Gold prices remain bullish and trading at all-time highs, clearing the May 20 high of $2450, which opened the door for further gains. Momentum is still in the bulls' favor, as depicted by the Relative Strength Index (RSI), which aims higher and is shy of reaching “regular” overbought conditions.

XAU/USD's next resistance would be $2,475, followed by the $2,500 figure. Conversely, if gold prices slide below $2,450, the first resistance would be the $2,400 figure, followed by the July 5 high at $2,392. If cleared, XAU/USD would continue to $2,350.

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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