- Gold price regains positive traction following the overnight slump to a one-week trough.
- Rising Fed rate cut bets cap the recent USD move up and offer support to the commodity.
- A positive risk tone warrants caution for the XAU/USD bulls ahead of the US inflation data.
Gold price (XAU/USD) sticks to modest intraday gains through the Asian session on Tuesday, though it lacks bullish conviction and remains close to a one-week low touched the previous day. The growing acceptance that the US Federal Reserve (Fed) will resume its rate-cutting cycle in September fails to assist the US Dollar (USD) in capitalizing on its gains registered over the past two days. This, in turn, is seen as a key factor offering some support to the non-yielding yellow metal.
The XAU/USD bulls, however, seem reluctant to place aggressive bets and opt to wait for the latest US consumer inflation figures. The crucial data would provide fresh cues about the Fed’s rate-cut path, which, in turn, will drive the USD demand and provide some meaningful impetus to the Gold price. In the meantime, the optimism over an extension of the US-China trade truce and the US-Russia summit aimed at ending the war in Ukraine could act as a headwind for the commodity.
Daily Digest Market Movers: Gold price benefits from Fed rate cut bets, subdued USD demand
- Gold price fell sharply on Monday as easing geopolitical tensions weighed heavily on traditional safe-haven assets. Investors remain hopeful that the upcoming US-Russian summit on Friday will increase the chances of ending the prolonged war in Ukraine. Furthermore, some follow-through US Dollar buying contributed to the precious metal’s overnight slump of around 1.65%.
- Traders are overwhelmingly betting that the US Federal Reserve will lower borrowing costs by 25 basis points in September and deliver at least two rate cuts by the end of this year. The expectations were lifted by a series of disappointing US economic data released recently, including the closely watched Nonfarm Payrolls report, which signaled that the economy could be weakening.
- This, in turn, fails to assist the USD to build on a two-day-old positive move and helps revive demand for the non-yielding yellow metal during the Asian session on Tuesday. Traders, however, might refrain from placing aggressive directional bets and opt to move to the sidelines ahead of the US consumer inflation figures, which could provide more cues about the interest-rate outlook.
- Traders this week will also confront the release of the US Producer Price Index (PPI) on Thursday, along with US monthly Retail Sales data and Michigan Consumer Sentiment Index on Friday. Apart from this, speeches from a slew of influential FOMC members will play a key role in driving the near-term USD price dynamics and provide some meaningful impetus to the XAU/USD pair.
- On the trade-related front, US President Donald Trump signed an executive order on Monday extending a trade truce with China for another three months, easing market concerns about a trade war between the world’s two largest economies. Earlier, Trump posted on his social media account, saying that gold would not be subject to tariffs, though he fell short of offering any further details.
Gold price bears need to wait for a sustained break below 200-SMA pivotal support on H4
From a technical perspective, the XAU/USD pair manages to defend the 200-period Simple Moving Average (SMA) pivotal support on the 4-hour chart, currently pegged near the $3,344-3,342 region. Given that oscillators on the said chart have been gaining negative traction, a convincing break below could drag the Gold price to the $3,315 intermediate support en route to the $3,300 round figure. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.
On the flip side, any subsequent strength beyond the $3,358-3,360 region is likely to confront a stiff hurdle near the $3,380 area. A sustained move above should allow the Gold price to make a fresh attempt to conquer the $3,400 mark. Some follow-through buying beyond last week’s swing high, around the $3,409-3,410 area, would negate the negative outlook and lift the XAU/USD pair to the next relevant hurdle near the $3,422-3,423 area. The momentum could extend further towards the $3,434-3,435 strong horizontal barrier, which, if cleared decisively, might expose the all-time peak, around the $3,500 psychological mark touched in April.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/gold-price-edges-higher-as-usd-bulls-turn-cautious-ahead-of-us-consumer-inflation-data-202508120401