Gold trims gains amid cautious Fed rhetoric
- Gold price edges lower in Tuesday’s early European session.
- The stronger US economic data and the Fed’s hawkish stance continue to underpin the yellow metal.
- Investors will focus on the speech from Fed’s Cook and Bowman on Tuesday.
Gold price (XAU/USD) trades in positive territory on Tuesday despite the weaker Greenback. The stronger-than-expected US Purchasing Managers Index (PMI) released last week triggered the Federal Reserve (Fed) officials to push out the timing of the first interest rate cut this year, which continues to cap the gold’s upside. However, the safe-haven flows on the back of geopolitical tensions in the Middle East and Ukraine might boost the yellow metal in the near term.
Investors will take more cues from the Fed members’ speeches on Tuesday, with Lisa Cook and Michelle Bowman scheduled to speak. The crucial US economic data to be closely watched this week will be the final reading of the US Gross Domestic Product (GDP) for the first quarter (Q1) on Thursday and the Personal Consumption Expenditure (PCE) Price Index for May, which is due on Friday. Any evidence of a trend of easing inflation could prompt the expectation of Fed rate cuts later in 2024. This, in turn, might drag the Greenback lower and create a tailwind for USD-denominated Gold.
Daily Digest Market Movers: Gold price remains sensitive to Fed rate-cut path
- San Francisco Federal Reserve Bank President Mary Daly said on Monday that she does not believe the Fed should cut rates before the central bank is confident that inflation is headed towards 2%. Daly added that the labour market, albeit strong, might face rising unemployment if inflation remains persistent.
- The final reading of the US headline and Core Personal Consumption Expenditures (PCE) Price Index is expected to show an increase of 2.6% YoY in May.
- Traders are now pricing in a 66% odds of a Fed rate cut in September, up from 59.5% at the end of last week, according to the CME FedWatch Tool.
- Israeli Prime Minister Benjamin Netanyahu stated that the most intense phase of the assault against Hamas in Gaza is close to ending while stressing the broader war against Hamas wages on, per CNN.
- Russia has condemned the US for a “barbaric” strike in Crimea, which used US-provided missiles, killing at least four people, including children, and injuring 151 others. On Monday, Russia’s Foreign Ministry summoned US Ambassador Lynne Tracy and accused the US of launching a “proxy war,” warning that retaliation would “definitely follow,” per local news agency Aljazeera.
Technical Analysis: Gold price could face downward pressure in the shorter term
The gold price trades on a softer note on the day. The precious metal has formed a descending trend channel since May 10 on the daily timeframe. However, the yellow metal keeps the bullish vibe above the key 100-day Exponential Moving Average (EMA). Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating a neutral level between bullish and bearish positions.
The upper boundary of the descending trend channel at $2,350 will be the first stop for XAU/USD. A break above this level will pave the way to $2,387, a high of June 7. Further north, the next hurdle is seen at the all-time high of $2,450.
On the other hand, a low of June 21 at $2,316 acts as an initial support level for the yellow metal. Any follow-through selling will see a drop to $2,285, a low of June 7. The key contention level to watch is the $2,255-$2,260 zone, portraying the 100-day EMA and the lower limit of the descending trend channel.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.53% | -0.47% | -0.44% | -0.47% | -0.32% | -0.23% | -0.36% | |
| EUR | 0.52% | 0.04% | 0.08% | 0.06% | 0.21% | 0.29% | 0.14% | |
| GBP | 0.47% | -0.04% | 0.04% | 0.02% | 0.16% | 0.25% | 0.12% | |
| CAD | 0.44% | -0.09% | -0.04% | -0.02% | 0.12% | 0.22% | 0.12% | |
| AUD | 0.48% | -0.06% | -0.02% | 0.01% | 0.15% | 0.25% | 0.16% | |
| JPY | 0.31% | -0.19% | -0.18% | -0.11% | -0.14% | 0.08% | -0.01% | |
| NZD | 0.23% | -0.28% | -0.25% | -0.19% | -0.23% | -0.07% | -0.08% | |
| CHF | 0.35% | -0.18% | -0.14% | -0.12% | -0.13% | 0.03% | 0.08% |
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).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.