- Gold price struggles to capitalize on Friday’s breakout momentum amid a positive risk tone.
- Fed rate cut bets, along with geopolitical risks, might continue to lend support to the metal.
- Traders look to FOMC minutes and Fed Chair Powell’s speech this week for a fresh impetus.
Gold price (XAU/USD) shot to a fresh record peak – levels beyond the $2,500 psychological mark – on Friday and drew support from a combination of factors. The US Dollar (USD) came under some renewed selling pressure and dropped back closer to its lowest level since January touched earlier this week, which, in turn, benefited the commodity. Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war provided an additional lift to the safe-haven precious metal.
Meanwhile, easing fears about a possible recession in the United States (US) remains supportive of the prevalent risk-on mood and exerts some pressure on the Gold price during the Asian session on Monday. Traders also opt to lighten their bets and prefer to wait for more cues about the Federal Reserve’s (Fed) policy path before positioning for the next leg of a directional move. Hence, the focus remains glued to the release of the FOMC meeting minutes on Wednesday and Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium.
Daily Digest Market Movers: Gold price continues to draw support from dovish Fed expectations and geopolitical tensions
- Dovish Federal Reserve expectations, along with rising geopolitical tensions in the Middle East, lifted the Gold price to a fresh record high – levels beyond the $2,500 psychological mark – on Friday.
- The US Producer Price Index and Consumer Price Index released last week indicated that inflation is on a downward trend, which keeps the Fed on track for a 25-basis-point rate cut in September.
- This, to a larger extent, overshadowed Thursday’s upbeat US Retail Sales data, which eased concerns about a recession in the world’s largest economy and attracted fresh sellers around the US Dollar.
- Furthermore, the University of Michigan’s preliminary report showed that the US Consumer Sentiment Index improved for the first time after four months of declines and rose to 67.8 in August.
- Another key part of the report revealed that expectations for overall inflation over the next year held steady at 2.9% and over the next five years was unchanged for the fifth straight month at 3%.
- This, however, did little to impress the USD bulls amid bets for an imminent start of the Fed’s policy easing cycle, which has been a key factor driving flows towards the non-yielding yellow metal.
- Chicago Fed President Austan Goolsbee said the US economy is not showing signs of overheating, so central bank officials should be wary of keeping restrictive policy in place longer than necessary.
- San Francisco Fed President Mary Daly downplayed concerns about a sharp US economic slowdown, though said that the US central bank needs to take a gradual approach to lower borrowing costs.
- Investors now look to the FOMC minutes, due for release on Wednesday, and Fed Chair Jerome Powell’s comments at the Jackson Hole Symposium on Friday for cues about future rate-cut path.
- On the geopolitical front, Hamas published an official statement on Sunday rejecting the terms for a hostage release-ceasefire deal which were discussed in Doha on Thursday and Friday.
- Russia vowed to retaliate to Ukraine’s unexpected cross-border attack into the Kursk region that marked the first time since World War Two that a foreign army has been fighting in the country.
Technical Analysis: Gold price bulls have the upper hand, $2,470-2,472 throwback support zone holds the key
From a technical perspective, Friday’s breakout through the $2,470-2,472 horizontal barrier and a subsequent strength beyond the previous all-time high was seen as a fresh trigger for bullish traders. Furthermore, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, suggesting that the path of least resistance for the Gold price is to the upside. That said, failure to build on the momentum beyond the $2,500 psychological mark warrants some caution for bulls. Hence, it will be prudent to wait for some follow-through buying beyond Friday’s allow-time peak, around the $2,509-2,510 area, before positioning for any further gains.
On the flip side, the $2,472-2,470 resistance breakpoint now seems to protect the immediate downside. Any further decline is more likely to attract fresh buyers and remain limited near the $2,448-2,446 region. The latter should act as a key pivotal point for short-term traders, which if broken decisively should pave the way for deeper losses. The Gold price might then accelerate the corrective slide towards the 50-day Simple Moving Average (SMA), currently pegged near the $2,388-2,387 zone, with some intermediate support near the $2,400 round figure.
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.
Source: https://www.fxstreet.com/news/gold-price-trades-with-mild-negative-bias-above-2-500-bullish-potential-seems-intact-202408190313