Gold price surges above $2,400 amid Fed rate cut speculation

Gold price climbs above $2,400, ending a four-day losing streak amid falling US Treasury yields.
Traders await crucial economic data, including June’s inflation and Q2 GDP, to gauge the Fed’s next move.
India’s import tax cut on gold and silver boosts retail demand, supporting bullion prices.

Gold price recovered in the mid-North American session, boosted by a drop in US Treasury bond yields. This pushed the Greenback lower amid a busy Us economic docket in the week, which will feature crucial data. The XAU/USD trades at $2,404, up by 0.33%.

Wall Street trades with gains for the second straight day as market players digest last weekend's political developments in the US. Market players are eyeing the release of June’s inflation data and the preliminary reading of the Gross Domestic Product (GDP) for the second quarter of 2024.

The non-yielding metals are ending a four-day streak of losses as market participants await the Fed's first interest rate cut, according to a Reuters poll. The survey showed that 73 of 100 economists expect Powell and Co. to ease policy by 50 basis points (bps) in 2024, with 13 expecting 25 bps and three expecting no cuts.

Traders speculate the first 25 bps rate cut will be in September, as shown by the CME FedWatch Tool, with odds at 96%.

In the meantime, the US 10-year Treasury bond yield falls one and a half bps to 4.24%, a tailwind for the precious metal.

The Core Personal Consumption Expenditures (PCE) Price Index could be the last piece of the puzzle for Fed officials to begin relaxing policy. Sources cited by Reuters commented, “Anything weaker than expected (PCE data) would be a positive, mainly because it would convince the markets that the U.S. central bank is easing monetary policy in September.”

Bullion was also boosted by India’s slashing import taxes on Gold and Silver, which could lift retail demand.

The US Dollar Index (DXY), which tracks the currency's performance against six other currencies, aims up 0.17% at 104.45. This kept Gold prices glued to the $2,400 mark despite posting gains.

Daily digest market movers: Gold price recovers the $2,400 figure

Gold traders are focused on the release of key economic data, including Durable Goods Orders, the preliminary Q2 GDP number, and the Core PCE for June.
Durable Goods Orders are expected to increase from 0.1% to 0.4% month-over-month (MoM).
The Gross Domestic Product (GDP) for Q2 is projected to rise from 1.4% in Q1 2024 to 1.9% quarter-over-quarter (QoQ), indicating that the economy is accelerating as the year progresses.
The Fed’s preferred measure of inflation, the Core PCE, is expected to dip from 2.6% to 2.5% year-over-year (YoY).
The latest Consumer Price Index (CPI) data revealed a continuation of the disinflation process in the United States (US), boosting gold prices and increasing the likelihood that the Fed will cut interest rates starting in September.
December 2024 fed funds rate futures contract implies that the Fed will ease policy by 50 basis points (bps) toward the end of the year, up from 48 a day ago.

Technical analysis: Gold price contained within Monday’s trading range

Gold price seems to have finished its losing streak, forming a ‘bullish harami,’ a two-candle pattern, hinting the uptrend could continue in the near term.

The Relative Strength Index (RSI) is bullish and indicates that buyers are gathering momentum, which could drive prices higher.

XAU/USD needs to clear Monday’s high at $2,412 for a bullish continuation. Once surpassed, the next resistance would be $2,450 before challenging the all-time high of $2,483. Up next would be the $2,500 figure.

Conversely, if XAU/USD tumbles below the July 22 low of $2,384, a deeper correction is on the cards. The next support would be the 50-day Simple Moving Average (SMA) at $2,359. Once sellers clear the 100-day SMA at $2,315, further losses are seen before falling toward $2,300.

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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