Gold price consolidates as investors shift focus toward Fed policy

• Gold price moves sideways as investors await for Federal Reserve’s monetary policy decision.
• United States inflation cools beyond expectations but needs a continuation of the policy-tightening spell to return to the 2% target.
• Investors seek more guidance about BRICS’ gold-backed currency, which would be used to settle international payments.

Gold price (XAU/USD) drops back inside the woods after printing a fresh two-month high of $1,987.53 on Thursday. The precious metal struggles to find any direction as investors have shifted their focus towards the interest-rate decision by the Federal Reserve (Fed), which will be announced on July 26. The Fed has signaled that two more interest-rate hikes this year are appropriate, but investors are still in favor of only one more interest rate increase.

United States inflation cooled significantly in June, continuing its softening spell as gasoline prices have dropped broadly and demand for second-hand automobiles remained soft. This week, the US economic calendar is light, so investors will likely keep an eye on guidance about interest rates. In addition to that, investors seek more guidance about the BRICS’ gold-backed currency, which would be used to settle international payments.

Daily Digest Market Movers: Gold price moves sideways ahead of Fed’s policy

• Gold price finds support near $1,978.00 after a corrective move from $1,987.50 as the upside in the US Dollar Index (DXY) seems limited.
• The US Dollar Index rebounded after correcting to near 100.00. The upside in the USD index seems restricted amid an absence of supportive fundamentals.
• Some strength is observed in the US Dollar Index after a sharp declining move as investors are awaiting the interest-rate decision by the Federal Reserve (Fed).
• Consumer spending momentum has slowed but the broader picture shows it is still expanding.
• Fed Chair Jerome Powell and other members of the FOMC have been reiterating that two more interest-rate hikes are appropriate to tighten the grip on inflation.
• Even as inflation decelerated sharply in June, the Fed has not announced victory over inflation yet.
• Inflation softened significantly in June as prices of second-hand automobiles dropped.
• While Fed policymakers are favoring two more interest-rate hikes, investors anticipate only one more increase by year-end.
• No matter if Fed policymakers would raise interest rates once or twice, the central bank would not discuss rate cuts this year.
• Higher interest rates by the Fed have hit the housing sector. Monthly Housing Starts data reported by the United States Census Bureau on Wednesday showed that demand for new property has fallen to an annualized rate of 1.434 million in June, less than the estimates of 1.48 million and the prior release of 1.559 million.
• The market mood is expected to turn cautious as the US corporate earnings season has kicked off. In addition to that, the Chinese economy has attracted steep cuts in economic growth prospects after weaker-than-expected second-quarter Gross Domestic Product (GDP) numbers.
• Meanwhile, investors are focusing on a new gold-backed currency announced by BRICS (Brazil, Russia, India, China, and South Africa). Investors are anticipating a formal announcement at the group’s next summit in August.
• The introduction of a new gold-backed currency is expected to give a tough fight to the US Dollar Index as it could be used for making international payments.

Technical Analysis: Gold price touches 50% Fibonacci retracement above $1,980

Gold price settles comfortably above the 20-daily Exponential Moving Average (EMA), confirming that the short-term trend is bullish. The precious metal has reached 50% Fibonacci retracement or the halfway point of the latest swing (plotted from May 4 high at $2,067.00 to June 29 low at $1,893.70) at $1,983.00.

Momentum oscillators have shifted into bullish territory, showing no signs of divergence or any oversold signals.