- A combination of supporting factors assists the Gold price to attract buyers for the second successive day.
- The USD remains depressed amid the September Fed rate cut bets and acts as a tailwind to the XAU/USD.
- Geopolitical risks further lend support to the safe-haven precious metal, though bulls remain on the sidelines.
Gold price (XAU/USD) struggles to capitalize on the Asian session uptick to levels beyond the $2,400 mark, though manages to hold in positive territory for the second straight day on Monday. The US Personal Consumption Expenditures (PCE) Price Index data released on Friday showed that inflation rose modestly in June and lifted bets for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle. This leads to a further decline in the US Treasury bond yields, which, in turn, keeps the US Dollar (USD) bulls on the defensive and acts as a tailwind for the non-yielding yellow metal.
Apart from this, geopolitical risks stemming from conflicts in the Middle East offer additional support to the safe-haven Gold price. The upside, however, remains capped in the wake of the upbeat mood across the global equity markets, which tends to undermine demand for the traditional safe-haven XAU/USD. Traders also prefer to wait for the outcome of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday. This, along with key US macro data scheduled at the start of a new month, including the Nonfarm Payrolls (NFP) report, will provide a fresh impetus to the commodity.
Daily Digest Market Movers: Gold price traders seem non-committed amid mixed fundamental cues
- A tame US inflation data reaffirmed market expectations that the Federal Reserve (Fed) will cut interest rates in September and drive flows towards the non-yielding Gold price higher on Friday.
- The US Commerce Department's Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index edged 0.1% higher last month after being unchanged in May.
- Over the past 12 months through June, the PCE Price Index eased slightly from 2.6% in the previous month and was up 2.5%, matching consensus estimates and adding to signs of easing price pressures.
- The core PCE Price Index, which excludes volatile food and energy prices and is the Fed's preferred inflation gauge, showed a monthly increase of 0.2% in June and the yearly rate held steady at 2.6%.
- The improving inflation landscape dragged the yield on the benchmark 10-year note yields to a nearly two-week low on Monday, which continues to undermine the US Dollar and benefits the XAU/USD.
- The Golan Heights attack on Saturday has raised worries of an all-out war between Israeli forces and Hezbollah in Lebanon, which further underpins demand for the safe-haven precious metal.
- A strong rally across the global equity markets might keep a lid on any runaway rally for the commodity ahead of the crucial two-day FOMC monetary policy meeting, starting on Tuesday.
- Investors this week will further take cues from the Bank of Japan decision on Wednesday, which will be followed by the Bank of England meeting on Thursday and important US macro releases.
Technical Analysis: Gold price fails to build on the intraday positive move beyond the $2,400 round figure
From a technical perspective, the recent repeated failures to find acceptance below the 50-day SMA and the subsequent bounce warrant some caution for bearish traders amid neutral oscillators on the daily chart. Bulls, however, struggle to capitalize on the Asian session uptick to levels beyond the $2,400 mark, making it prudent to wait for strong follow-through buying before confirming that the Gold price has bottomed out.
In the meantime, momentum above the $2,400 round figure is likely to confront some resistance near the $2,412 area ahead of last week's swing high, around the $2,432 region. A sustained strength beyond the latter will suggest that the corrective decline from the all-time peak touched earlier this month has run its course and set the stage for additional gains. The Gold price might then climb to the $2,469-2,470 intermediate resistance and challenge the record peak, around the $2,483-2,484 zone.
On the flip side, weakness below the $2,380 level might continue to attract buyers near the 50-day SMA, currently pegged near the $2,360-2,359 region, and remain limited. A sustained breakdown through the said support, however, will be seen as a fresh trigger for bearish traders and drag the Gold price to the next relevant support near the $2,325 area. The downward trajectory could extend further towards testing the $2,300 round-figure mark for the first time since late June.
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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