- Gold price regains positive traction and climbs back closer to a two-week top.
- September Fed rate cut bets undermine the USD and lend support to the metal.
- The risk-on mood might cap gains as traders gear up for the key US jobs report.
Gold price (XAU/USD) attracts fresh buyers following the previous day’s range-bound price action and climbs back closer to its highest level since June 21 during the Asian session on Friday. Firming expectations that the Federal Reserve (Fed) will cut interest rates in September, bolstered by the recent softer US macro data, drags the US Dollar (USD) to over a three-week low and is seen benefiting the non-yielding yellow metal. Apart from this, persistent geopolitical tensions, along with political uncertainty in the US and Europe, turn out to be another factor driving flows towards the safe-haven commodity.
That said, the prevalent risk-on environment – as depicted by the recent bullish run across the global equity markets – might keep a lid on any runaway rally for the XAU/USD. Traders might also refrain from placing aggressive bets and prefer to wait for the release of the US monthly employment details. The popularly known Nonfarm Payrolls (NFP) report will influence market expectations about the Fed’s future policy decisions. This, in turn, will drive the near-term USD demand and provide a fresh directional impetus to the precious metal, which remains on track to register gains for the second straight week.
Daily Digest Market Movers: Gold price bulls retain control amid dovish Fed expectations-inspired USD selling
- Expectations for an imminent start of the Federal Reserve’s rate-cutting cycle in September weigh on the US Dollar for the fourth straight day on Friday and continue to lend support to the non-yielding Gold price.
- The market bets were lifted by this week’s softer US macroeconomic releases, which pointed to signs of weakness in the labor market and a loss of momentum in the economy at the end of the second quarter.
- That said, hawkish signals from a slew of influential Fed officials, along with the minutes of the June FOMC policy meeting, suggest that policymakers were still not confident about bringing down lending costs.
- Furthermore, the underlying bullish sentiment across the global equity markets holds back traders from placing fresh bullish bets around the safe-haven precious metal ahead of the closely-watched US employment data.
- The popularly known Nonfarm Payrolls report is due for release later during the North American session and is expected to show that the US economy added 190K jobs in June as compared to the 272K previous.
- Meanwhile, the unemployment rate is anticipated to hold steady at 4%, while Average Hourly Earnings growth could see a modest dip, rising by the 3.9% yearly rate as compared to the 4.1% increase recorded in May.
- The crucial data will play a key role in influencing market expectations about the Fed’s future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the XAU/USD.
Technical Analysis: Gold price could aim to reclaim the $2,400 mark and aim to challenge the all-time peak
From a technical perspective, Wednesday’s sustained breakout through the 50-day Simple Moving Average (SMA) was seen as a fresh trigger for bullish traders. Adding to this, oscillators on the daily chart have again started gaining positive traction and suggest that the path of least resistance for the Gold price is to the upside. Some follow-through buying beyond the $2,365 area will reaffirm the constructive outlook and allow the XAU/USD to reclaim the $2,400 mark. The momentum could extend further towards challenging the all-time peak, around the $2,450 zone touched in May.
On the flip side, weakness back towards the 50-day SMA resistance breakpoint, around the $2,339-2,338 region, could be seen as a buying opportunity. This is followed by support near the $2,319-2,318 area, which if broken decisively could make the Gold price vulnerable to weaken further below the $2,300 mark and test the $2,285 horizontal zone. Failure to defend the said support levels might expose the 100-day SMA, currently near the $2,258 area, and the $2,225-2,220 support before the XAU/USD eventually drops to the $2,200 round-figure mark.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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