Most recent article: Gold price retreats amid falling US yields, buoyant US Dollar
- Gold price edges lower in Wednesday’s early European session.
- The escalating Middle East geopolitical tensions and firmer Fed rate-cut expectations might support Gold price.
- JOLTS Job Openings and Fed Beige Book are due later on Wednesday.
The Gold price (XAU/USD) bounces off the multi-day lows but remains below the $2,500 barrier amid the renewed bid bias in the US Dollar (USD) on Wednesday. However, the ongoing geopolitical risks and imminent Federal Reserve (Fed) rate cuts might underpin the yellow metal in the near term.
Later on Wednesday, JOLTS Job Openings and Fed Beige Book will be released. Investors will closely monitor the highly-anticipated US August Nonfarm Payrolls (NFP) on Friday, which could determine the size and pace of the potential rate cut at the Federal Reserve’s September policy meeting. If the report shows weaker-than-expected reading, this could fuel speculation about a US recession and faster Fed rate cuts. This, in turn, could further boost the precious metal as lower interest rates reduce the opportunity cost of holding non-yielding Gold.
Daily Digest Market Movers: Gold price loses ground amid firmer US Dollar
- China’s Caixin Services PMI declined to 51.6 in August from 52.1 in July, missing the market consensus of 52.2 in the reported period, by a wide margin.
- “We see evidence that speculative positioning in gold is effectively maxed out for the time being. I think the level to which gold is seeing pressure from the rise in the dollar reflects our view on positioning,” said Daniel Ghali, commodity strategist at TD Securities.
- The US ISM Manufacturing PMI rose to 47.2 in August from an eight-month low in July at 46.8. This figure was below the market consensus of 47.5.
- Traders raised the chance of a more aggressive half-point reduction to 39%, up from 31% before the US ISM Manufacturing PMI report, according to the CME Group’s FedWatch measure.
- The US JOLTS Job Openings are expected to be 8.10 million, down from 8.184 million in June.
- The US ISM Services PMI is projected to come in at 51.4 in August from 51.1 in July.
Technical Analysis: Gold price keeps the positive outlook in the longer term
The Gold price trades in negative territory on the day. The precious metal maintains a bullish trend on the daily chart as the price is above the key 100-day Exponential Moving Average (EMA) and reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline.
The crucial upside barrier for the yellow metal emerges at the $2,530-$2,540, representing the five-month-old ascending channel’s upper boundary and the all-time high. Sustained trading above this level could pave the way to the $2,600 psychological mark.
On the other hand, the immediate support level to watch is $2,470, the low of August 22. A breach of the mentioned level could see a downward move back towards $2,432, the low of August 15. Extended losses will see a drop to $2,377, the 100-day EMA.
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.
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