- Gold price shot to a fresh all-time peak on Tuesday amid dovish Fed-inspired USD selling bias.
- Geopolitical tensions further contributed to driving flows towards the safe-haven XAU/USD.
- Bulls take a pause and await more cues about the Fed’s rate-cut path before placing fresh bets.
Gold price (XAU/USD) climbed to a fresh record high, around the $2,531-2,532 area on Tuesday amid growing acceptance that the Federal Reserve (Fed) will soon start its policy easing cycle. The markets are currently pricing in a greater chance of a 25 basis points (bps) rate cut in September, which, in turn, boosted demand for the non-yielding yellow metal. Meanwhile, dovish Fed expectations continue to weigh on the US Treasury bond yields and the US Dollar (USD). In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, dived to a fresh seven-month low and further underpinned the commodity.
Apart from this, the overnight modest pullback in the US equity markets turned out to be another factor that benefited the safe-haven Gold price. That said, the latest optimism that tensions in the Middle East were easing kept a lid on any further gains for the XAU/USD. Bulls also seemed reluctant and preferred to wait for the Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium on Friday. This, along with the July FOMC meeting minutes, will be looked upon for cues about the Fed’s policy path, which, in turn, will play a key role in driving the USD demand in the near term and provide some meaningful impetus to the metal.
Daily Digest Market Movers: Gold price remains supported by Fed rate cut bets, bearish USD and geopolitical risks
- Bets for an imminent start of the Federal Reserve’s rate-cutting cycle in September have put the US Treasury bond yields and the US Dollar under pressure, which, in turn, lifted the Gold price to a fresh record high on Tuesday.
- According to the CME Group’s FedWatch Tool, the markets are currently pricing in just over a 70% chance that the US central bank will lower borrowing costs by 25 basis points at the September FOMC monetary policy meeting.
- Moreover, a Reuters poll indicated that a slim majority of economists expect that the Fed will cut interest rates by 25 bps at each of the remaining three meetings of 2024, one more rate reduction than predicted last month.
- Fed Governor Michelle Bowman tried to temper expectations of a near-term rate cut and said that despite the recent progress, price growth levels remain well-elevated and still uncomfortably above the central bank’s 2% goal.
- The People’s Bank of China (PBOC) granted new gold import quotas to several Chinese banks last week in anticipation of reviving demand, suggesting that another Chinese gold buying spree could be on the horizon.
- Furthermore, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, jumped to their highest in seven months at 859 tons on Monday and pointed to improving financial investment demand.
- Meanwhile, geopolitical concerns, particularly in the Middle East and a potential ceasefire between Israel and Hamas, keep investors on edge and turn out to be another factor underpinning the safe-haven XAU/USD.
- Traders, however, turn cautious ahead of the release of the July FOMC meeting minutes later this Wednesday and Fed Chair Jerome Powell’s speech on Friday, which will be looked for cues about the future policy path.
Technical Analysis: Gold price bulls retain control, last week’s breakout through the $2,480 level remains in play
From a technical perspective, last Friday’s breakout through the triple top resistance, around the $2,479-2,480 region, and the subsequent strength beyond the $2,500 psychological mark was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the upside.
Hence, any meaningful pullback might still be seen as a buying opportunity near the $2,500 round figure, which should help the downside for the Gold price near the $2,480 resistance breakpoint. Some follow-through selling, however, could drag the XAU/USD towards the $2,455-2,453 horizontal support en route to the $2,430 region. A convincing break below the latter could drag the metal to the 50-day Simple Moving Average (SMA), currently pegged just below the $2,400 mark.
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.