- Gold price attracts some buyers and snaps a three-day losing streak amid modest USD weakness.
- The US political development prompts some unwinding of the ‘Trump trade’ and weighs on the buck.
- September Fed rate cut bets further undermine the USD and benefit the non-yielding XAU/USD.
Gold price (XAU/USD) gains some positive traction during the Asian session on Monday and for now, seems to have snapped a three-day losing streak to sub-$2,400 levels, or a one-week low touched on Friday. The US political development over the weekend prompts fresh selling around the US Dollar (USD), which, along with bets for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle in September, benefits the precious metal.
Apart from this, worries about slowing Chinese economic growth, geopolitical risks stemming from the protracted Russia-Ukraine war and the ongoing conflicts in the Middle East turn out to be another factor lending support to the safe-haven Gold price. The USD, however, lacks follow-through selling as investors await more cues about the Fed's policy path, which, in turn, will determine the next leg of a direcitonal move for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price attracts buyers amid the US political development, dovish Fed expectations
- A combination of supporting factors assists the Gold price to attract some buyers on the first day of a new week and snap a three-day losing streak to sub-$2,400 levels, or a one-week low touched on Friday.
- The US Dollar comes under renewed selling pressure in reaction to US President Joe Biden's exit from the presidential race on Sunday, which prompts investors to unwind some trades betting on a Trump victory.
- Vice President Kamala Harris solidified her position as the leading Democratic candidate in the Presidential race, though former President Donald Trump still remains a favorite in the betting market.
- Market participants, meanwhile, have fully priced in a September interest rate cut by the Federal Reserve, which contributes to keeping the USD bulls on the defensive and lends support to the XAU/USD.
- That said, the underlying bullish tone across the global equity markets cap gains for the safe-haven commodity as traders look to the US Personal Consumption Expenditures (PCE) Price Index data on Friday.
- The crucial inflation data will influence expectations about the Fed's rate-cut path, which, in turn, will drive USD demand in the near term and provide a fresh directional impetus to the commodity.
- Furthermore, this week's release of flash PMIs should provide cues about the health of the global economy and provide some impetus to the metal, allowing traders to grab short-term opportunities.
Technical Analysis: Gold price bulls seem to have the upper hand while above the $2,390-2,385 pivotal support
From a technical perspective, last week's corrective slide from the all-time peak stalled ahead of the $2,390-2,385 horizontal support. The said area coincides with the 50% retracement level of the June-July rally and the 100-period Simple Moving Average (SMA) on the 4-hour chart, which, in turn, should now act as a key pivotal point for short-term traders. A convincing break below is likely to pave the way for deeper losses and drag the Gold price to 61.8% Fibo. level, around the $2,366-2,365 region, en route to the $2,352-2,350 zone. Some follow-through selling will expose the 78.6% Fibo. level, near the $2,334-2,334 area, before the XAU/USD eventually drops to the $2,300 mark.
On the flip side, any subsequent move up is likely to confront some resistance near the $2,417-2,418 zone, above which a bout of a short-covering has the potential to lift the Gold price to the $2,437-2,438 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and set the stage for a move towards challenging the all-time peak, around the $2,482 area touched on July 17, with some intermediate resistance near the $2,458 region.
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.
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