Gold price (XAU/USD) witnessed heavy selling following the release of the upbeat US macro data and dived to its lowest level in over two weeks on Thursday. The Advance Gross Domestic Product (GDP) estimate showed that the US economy expanded at a faster-than-expected pace and that inflation slowed during the second quarter of 2024. This, in turn, suggested that the US economy is still holding up well and infused some stability in the financial markets, which, in turn, weighed on the traditional safe-haven precious metal.
The optimism keeps the Gold price on the defensive during the Asian session on Friday, though expectations for an imminent start of the Federal Reserve's (Fed) rate-cutting cycle help limit the downside. Traders also seem reluctant and prefer to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index later this Friday before placing directional bets. The crucial inflation data will play a key role in determining the Fed's policy path, which, in turn, will drive the US Dollar (USD) and the non-yielding yellow metal.
Technical Analysis: Gold price needs to find acceptance below 50-day SMA for bears to seize near-term control
From a technical perspective, the Gold price showed some resilience below the 50-day Simple Moving Average (SMA) for the second straight day on Friday and for now, seems to have snapped a two-day losing streak. Hence, some follow-through selling below the overnight swing low, around the $2,353 area, is needed to support prospects for an extension of the recent corrective decline from the all-time peak touched last week.
Meanwhile, oscillators on the daily chart have just started gaining negative traction, suggesting that the path of least resistance for the XAU/USD is to the downside and that any further recovery is likely to attract fresh sellers near the $2,380 region. The next relevant hurdle is pegged near the $2,391-2,392 zone ahead of the $2,400 mark, above which a fresh bout of a short-covering should lift the metal towards the weekly top, around the $2,432 region.
On the flip side, acceptance below the 50-day SMA and a subsequent break through the $2,350 support, will be seen as a fresh trigger for bearish traders. The Gold price might then aim to challenge the 100-day SMA, currently pegged near the $2,325-2,324 region. The latter should act as a key pivotal point, which if broken should pave the way for a slide towards testing sub-$2,300 levels, or June monthly swing lows.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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