Gold extends its upside as investors bet on rate cuts
- Gold price trades on a weaker note on Tuesday amid the rebound in the USD.
- The hope for Fed rate cuts, rising geopolitical risks, and strong gold demand might cap the yellow metal’s downside.
- Investors await Fed’s Waller, Williams, Barr, Bostic, Collins, and Mester speeches later on Tuesday.
Gold price (XAU/USD) loses its recovery momentum on Tuesday after reaching a record high earlier. The lack of fresh catalysts in a quiet session in terms of top-tier economic data might limit the precious metal’s upside. Nonetheless, the renewed gold demand is bolstered by higher bets on interest rate cuts from the US Federal Reserve (Fed), ongoing geopolitical tensions, and the strong demand stemming from central banks and Asian buyers.
Gold traders will take more cues from the Fedspeak, with the Fed’s Waller, Williams, Barr, Bostic, Collins, and Mester scheduled to speak later on Tuesday. The FOMC Minutes will be the highlight on Wednesday. Furthermore, the hawkish stance from Fed officials is likely to lift the Greenback and drag the USD-denominated Gold lower.
Daily Digest Market Movers: Gold price struggles to gain ground amid the USD recovery
- Gold reached a record high on Monday at $2,450, and silver prices moved toward 12-year highs. Gold has risen 18% this year, while silver has gained 35%.
- Fed Vice Chair Michael Barr said that the central bank “will need to allow our restrictive policy some further time to continue to do its work.”
- Fed policymaker Philip Jefferson, another permanent voting member of the Fed’s rate-setting committee, said inflation was still easing, although nowhere near as quickly as he expected.
- Atlanta Fed President Raphael Bostic said that policy is restrictive and that it would take a while before the central bank gains confidence that inflation is headed to 2%.
- Investors see a 76% odd of rate cut from the Fed by 25 basis points (bps) in September and two cuts by the end of the year, according to the CME FedWatch Tool.
Technical Analysis: Gold price’s constructive stance remains intact
Gold price posts edges lower on the day. According to the four-hour timeframe, the yellow metal keeps the positive stance unchanged as it holds above the key 100-period Exponential Moving Average (EMA) with an upward slope. The Relative Strength Index (RSI) stands in the bullish zone around 69.00, suggesting the support level is likely to hold rather than break.
Any follow-through buying could make another attempt at breaking above an all-time high of $2,450. Further north, the next hurdle is seen at the $2,500 psychological mark.
On the other hand, the resistance-turned support level of $2,420 acts as an initial support level for XAU/USD. The additional downside filter to watch is the $2,400 round number. The key contention level will emerge at the 100-period EMA at $2,355.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.58% | -1.14% | -0.20% | -0.71% | 0.11% | -1.19% | 0.33% | |
| EUR | 0.56% | -0.56% | 0.38% | -0.14% | 0.70% | -0.60% | 0.92% | |
| GBP | 1.12% | 0.55% | 0.92% | 0.43% | 1.24% | -0.05% | 1.47% | |
| CAD | 0.20% | -0.37% | -0.94% | -0.50% | 0.33% | -0.98% | 0.54% | |
| AUD | 0.69% | 0.13% | -0.43% | 0.51% | 0.83% | -0.47% | 1.04% | |
| JPY | -0.11% | -0.69% | -1.26% | -0.33% | -0.83% | -1.29% | 0.22% | |
| NZD | 1.18% | 0.63% | 0.06% | 0.98% | 0.47% | 1.30% | 1.52% | |
| CHF | -0.37% | -0.92% | -1.49% | -0.55% | -1.07% | -0.22% | -1.53% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.