Gold price steadies on firm Fed rate-cut prospects

• Gold’s price hovers near $2,400 as the US Dollar and bond yields correct.
• The Fed is expected to cut interest rates by more than 100 bps this year.
• Investors await the US weekly jobless claims data.

Gold’s price (XAU/USD) slightly recovers from a two-day low of $2,380 in Thursday’s European session. The precious metal continues to hold ground due to expectations that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.

Meanwhile, some corrections in the US Dollar (USD) and bond yields have offered a cushion to Gold’s price. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops to near 103.00 from a three-day high of 103.37. Meanwhile, 10-year US Treasury yields tumble to near 3.90%. Historically, lower yields on interest-bearing assets bode well for non-yielding assets, such as Gold, by reducing the opportunity cost of investment in them.

According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that traders see a 50-basis point (bp) cut in interest rates in September as imminent. The data also suggests that the Fed will reduce its key borrowing rates by more than 100 bps this year. Market speculation for the Fed approaching an aggressive policy stance was prompted by softening labor market conditions, signaled by slower job growth and a rising Unemployment Rate in July.

Daily digest market movers: Gold price capitalizes on multiple tailwinds

• Gold price remains steady on multiple tailwinds. Growing expectations for Fed rate-cut prospects and escalating Middle East tensions have kept the Gold price’s downside limited. The prospects for Fed’s bulk rate cuts were bolstered by potential economic slowdown as investors worry that the United States (US) struggles to bear the consequences of higher interest rates.
• While traders priced in aggressive rate-cut announcements by the Fed this year, US economic data has not pointed to a significant slowdown. Though the ISM Manufacturing Purchasing Managers’ Index (PMI) contracted at a faster-than-expected pace in July, activities in the service sector, which accounts for two-thirds of the economy, expanded strongly.
• Commenting on the Services PMI performance, Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The July surveys are indicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualized 2.2% pace."
• On the geopolitical front, escalating conflicts between Iran and Israel kept Gold’s safe-haven appeal intact. Saudi Arabia said the killing of the Hamas leader in Tehran is a 'blatant violation' of Iran's sovereignty, Deccan Herald reported. Meanwhile, Israel vowed to eliminate the new Hamas chief, Yahya Sinwar.
• In Thursday’s session, investors will focus on the US Initial Jobless Claims data for the week ending August 2, which will be published at 12:30 GMT. The Department of Labor is expected to show that individuals claiming jobless benefits for the first time were 240K, lower than the prior release of 249K.

Technical Analysis: Gold price hovers near $2,400

Gold’s price trades in a channel formation on a daily timeframe, which is slightly rising but broadly exhibited a sideways performance for more than three months. The 50-day Exponential Moving Average (EMA) near $2,370 continues to provide support to the Gold price bulls. 

The 14-day Relative Strength Index (RSI) oscillates within the 40.00-60.00 range, suggesting indecisiveness among market participants.

A fresh upside would appear if the Gold price breaks above its all-time high of $2,483.75, which will send it into unchartered territory.

On the downside, the upward-sloping trendline at $2,225, plotted from the October 6 low near $1,810.50, will be a major support in the longer term.