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24.06.2024, 03:20

Gold price trades with mild positive bias, lacks follow-through amid mixed cues

  • Gold price attracts some buyers and reverses a part of Friday’s slide from a two-week high.
  • Bets for a September Fed rate cut and geopolitical risk lend some support to the XAU/USD.
  • The USD climbs to its highest level since May 9 and acts as a headwind for the commodity.

Gold price (XAU/USD) finds some support near the $2,317 region during the Asian session on Monday and for now, seems to have stalled its retracement slide from a two-week high touched on Friday. Growing acceptance that the Federal Reserve (Fed) will start its rate-cutting cycle in September amid signs of easing inflationary pressures acts as a tailwind for the non-yielding yellow metal. Adding to this, a softer risk tone, persistent geopolitical tensions and political uncertainty in Europe lend support to the safe-haven commodity. 

Meanwhile, the stronger-than-expected US PMIs released on Friday pointed to a still resilient economy. This comes on top of the Fed's hawkish surprise earlier this month, forecasting only one rate cut in 2024, which continues to underpin the US Dollar (USD) and should keep a lid on any meaningful upside for the Gold price. Traders might also prefer to move to the sidelines ahead of this week's release of the final US Q1 GDP print and the Personal Consumption Expenditures (PCE) Price Index before placing fresh directional bets. 

Daily Digest Market Movers: Gold price benefits from Fed rate cut bets, stronger USD caps gains

  • A combination of diverging forces fails to provide any meaningful impetus to the Gold price and leads to subdued range-bound price action on the first day of a new week. 
  • The Federal Reserve adopted a more hawkish stance at the end of the June meeting, while policymakers continue to argue in favor of only one interest rate cut by the end of this year. 
  • This, along with Friday's better-than-expected US flash PMIs, lifts the US Dollar to its highest level since May 9 and turns out to be a key factor acting as a headwind for the commodity. 
  • The flash US composite PMI edged up from 54.5 in May to 54.6 this month, or the highest level since April 2022, suggesting that the economy ended the second quarter on a solid note.
  • Meanwhile, the prices paid for inputs measure dropped to 56.6 from 57.2 previous, while the output prices gauge fell to 53.5, marking one of the slowest rises over the past four years.
  • This comes on the back of softer US consumer and producer prices, which, along with last week's disappointing US Retail Sales figures, keep bets for two rate cuts this year on the table. 
  • According to the CME Group's FedWatch Tool, the markets are currently pricing in over a 60% chance that the Federal Reserve will begin cutting interest rates at the September meeting. 
  • The US central bank is anticipated to lower borrowing costs further in December, which acts as a headwind for the US Treasury bond yields and lends support to the XAU/USD. 
  • The security pact between Russian President Vladimir Putin and North Korean leader Kim Jong-un in Pyongyang raises the risk of a further escalation of geopolitical tensions. 
  • Furthermore, French President Emmanuel Macron's decision to call snap elections sparked concerns about wider political uncertainty and should limit losses for the safe-haven metal. 
  • Traders will continue to take cues from comments by FOMC members ahead of this week's release of the final US GDP and the Personal Consumption Expenditures (PCE) Price Index. 

Technical Analysis: Gold price manages to hold above a short-term ascending trend-line support

From a technical perspective, Friday's decline could be categorized as a failed breakout through the 50-day Simple Moving Average (SMA) resistance. The subsequent downfall, however, stalls ahead of a two-week-old ascending trend-line support, currently pegged near the $2,312 region, which should now act as a key pivotal point. Given that oscillators on the daily chart have just started drifting in negative territory, a convincing break below the said support will make the Gold price vulnerable to weaken below the $2,300 mark and retest the monthly swing low around the $2,285 horizontal zone. Some follow-through selling will be seen as a fresh trigger for bearish traders and expose the 100-day SMA support near the $2,247-2,246 area. The downward trajectory could extend further towards the $2,225-2,220 support before the commodity eventually drops to the $2,200 round-figure mark.

On the flip side, the 50-day SMA, currently pegged near the $2,341-2,342 region, is likely to act as an immediate strong hurdle ahead of Friday's swing high, around the $2,368-2,369 zone. Some follow-through buying has the potential to lift the Gold price towards the $2,387-2,388 intermediate hurdle en route to the $2,400 round-figure mark. A sustained strength beyond the latter will negate any near-term negative outlook and allow the XAU/USD to aim back to retest the all-time peak, around the $2,450 area touched in May.

Gold FAQs

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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