Gold price steadies on firm Fed rate-cut bets, Middle East conflicts

• Gold price hovers below $2,450 after profit-booking but holds ground on multiple tailwinds.
• The Fed is expected to cut interest rates by more than 100 bps this year.
• The US Dollar falls near the March bottom, and bond yields post fresh annual lows.

Gold price (XAU/USD) recovers above $2,440 after declining to near $2,410 in Monday’s European session. The precious metal faced selling pressure as profit booking kicked in while attempting to recapture all-time highs above $2,480. The overall outlook of the Gold price remains firm as US bond yields post fresh annual lows.

10-year US Treasury yields plunge to 3.67% as speculation for rate cuts by the Federal Reserve (Fed) in September seems certain. Lower yields on interest-bearing assets reduce the opportunity cost of holding an investment in non-yielding assets, such as Gold. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plummets to the March low near 102.60.

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 shows that the Fed is expected to reduce its key borrowing rates by more than 100 bps this year.

Market expectations for larger rate cuts have been prompted by a string of weak United States (US) economic data, which pointed to an economic slowdown and raised doubts on whether the Fed will achieve a ‘soft landing’. A soft landing is a situation in which the central bank grips over inflation without triggering a recession in the economy.

Deteriorating labor market conditions and a sharp slowdown in the manufacturing sector are the major triggers that boosted expectations of bulk rate cuts. The July Nonfarm Payrolls (NFP) report showed that labor demand slowed significantly, and the Unemployment Rate unexpectedly rose to its highest level since November 2021.

Fresh payrolls at 114K were significantly lower than estimates of 175K and June’s reading of 179K. The Unemployment Rate jumped to 4.3% from expectations and the prior release of 4.1%. Meanwhile, activities in the manufacturing sector, as measured by the ISM Manufacturing Purchasing Managers Index (PMI), contracted at a faster pace to 46.8 in July.

Daily digest market movers: Gold price holds ground while US Dollar, bond yields nosedive

• Gold price exhibits steady performance on deepening geopolitical tensions and growing fears of a global economic slowdown. Conflicts in the Middle East appear to have widened as Iran-backed Hezbollah said it launched dozens of missiles on Israel on Saturday in retaliation to the assassination of Hamas leader Ismail Haniyeh by an Israeli airstrike in Tehran. Historically, geopolitical tensions increased Gold’s appeal as a safe-haven asset.
• The global demand environment has deteriorated due to higher interest rates by the central banks. The world’s second-largest country, China, is going through a vulnerable phase due to poor demand from both the domestic and overseas markets. The Caixin Manufacturing PMI surprisingly contracted in July to 49.8. The Eurozone economy is also facing demand issues in its largest nation, to which the German administration has provided tax relief to individuals and the corporate sector. And now, slowing US economic growth has spurted slowdown fears.
• In Monday’s session, investors will focus on the US ISM Services PMI for July, which will be published at 14:00 GMT. The PMI report is expected to show that activities in the services sector expanded to 51.0 after contracting to 48.8 the previous month. Investors will also focus on other Services PMI indexes, such as Prices Paid and New Orders, which indicate changes in input prices and forward demand, respectively.

Technical Analysis: Gold prices hovers below $2,450

Gold price oscillates inside Friday’s trading range. The precious metal 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.