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30.07.2024, 02:12

Gold price languishes around $2,380, looks to Fed decision for fresh impetus

  • Gold price remains depressed amid a modest USD strength, though the downside seems limited.
  • September Fed rate cut bets might cap further USD gains and lend support to the XAU/USD.
  • Traders also seem reluctant ahead of the key central bank event risks and important macro data.

Gold price (XAU/USD) struggled to find acceptance above the $2,400 mark and attracted some intraday sellers on Monday amid a strong pickup in US Dollar (USD) demand. Apart from this, the risk-on impulse was seen as another factor exerting some downward pressure on the safe-haven precious metal. That said, geopolitical risks stemming from the ongoing conflicts in the Middle East offered some support to the commodity.

Meanwhile, growing acceptance that the Federal Reserve (Fed) will start cutting interest rates in September, bolstered by a tame US inflation report on Friday, capped gains for the USD and helped limit losses for the Gold price. Furthermore, traders opt to wait for the outcome of the highly anticipated two-day Federal Open Market Committee (FOMC) meeting on Wednesday before committing to any firm near-term trajectory for the XAU/USD. 

Investors this week will further take cues from the crucial Bank of Japan (BoJ) decision on Wednesday, the Bank of England (BoE) meeting on Thursday and important US macro releases, including the Nonfarm Payrolls (NFP) on Friday. Apart from this, other economic data scheduled at the beginning of a new month should provide cues about the health of the global economy and determine the next leg of a directional move for the Gold price. 

Daily Digest Market Movers: Gold price traders keenly await more cues about the Fed’s rate-cut path

  • The US Dollar shot to a two-and-half-week top on Monday, which, along with a positive risk tone, failed to assist the Gold price in building on last week's modest bounce from the vicinity of the $2,350 level. 
  • Israel vowed retaliation against Iran-backed Lebanese group Hezbollah in response to the Golan Heights attack on Saturday, though said that it wants to avoid dragging the Middle East into an all-out war.
  • Further evidence of easing price pressures in the US reaffirmed market bets for an imminent start of the Federal Reserve's policy easing cycle in September and kept the US Treasury bond yields depressed. 
  • The yield on the rate-sensitive 2-year US government bond fell to its lowest since February 2, while the benchmark 10-year Treasury yield hangs near a one-month low amid the improving inflation landscape.
  • This, in turn, should cap any further upside for the USD and act as a tailwind for the non-yielding yellow metal as traders now look forward to this week's key central bank event risks for some meaningful impetus. 
  • The Bank of Japan and the Fed are scheduled to announce their respective policy decisions at the end of a two-day meeting on Wednesday, which will be followed by the Bank of England policy update on Thursday.
  • Investors this week will also confront key macro releases scheduled at the start of a new month, including the official Chinese PMIs, Eurozone consumer inflation figures and the US Nonfarm Payrolls report.

Technical Analysis: Gold price needs to find acceptance below 50-day SMA for bears to seize control

From a technical perspective, the overnight failure to find acceptance above the $2,400 mark and the subsequent downtick warrants some caution before positioning for any meaningful upside. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. Bearish traders, however, need to wait for a sustained break below the 50-day Simple Moving Average (SMA) support, currently pegged near the $2,358 region, before placing fresh bets. 

Some follow-through selling below last week's swing low, around the $2,353 area, will reaffirm the negative outlook and drag the XAU/USD to the next relevant support near the $2,325 area. The downward trajectory could extend further towards testing the $2,300 round-figure mark for the first time since late June.

On the flip side, momentum above the $2,400 mark is likely to confront some resistance near the $2,412 area ahead of last week's swing high, around the $2,432 region. A sustained strength beyond the latter will suggest that the corrective decline from the all-time peak touched earlier this month has run its course and set the stage for additional gains. The Gold price might then climb to the $2,469-2,470 intermediate resistance and challenge the record peak, around the $2,483-2,484 zone.

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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