Gold struggles to gain ground as traders await fresh catalysts
- Gold price attracts some sellers, snapping the two-day-winning streak in Tuesday’s early European session.
- Rising bets of a US rate cut this year and escalating geopolitical conflicts might cap the Gold’s downside.
- Investors will watch the US CB’s Consumer Confidence and Housing Price Index data, which are due on Tuesday.
The Gold price (XAU/USD) trades in negative territory amid the modest recovery of the US Dollar (USD) on Tuesday. Nonetheless, the signal from US Federal Reserve (Fed) Chair Jerome Powell at Jackson Hole to start cutting interest rates is likely to support the precious metal. Lower interest rates are generally positive for gold as they reduce the opportunity cost of holding non-interest-paying assets. Furthermore, the rising geopolitical tensions in the Middle East might further boost Gold, a traditional safe-haven asset.
The People’s Bank of China (PBOC) halted gold purchases in July, marking the third straight month it did not acquire for reserves. Traders will watch the August data for fresh impetus. The concerns about the sluggish economy and the demand for precious metals in China could drag the price of gold down as China is the largest producer and consumer of gold worldwide.
The US Conference Board’s Consumer Confidence for August and Housing Price Index for June are due on Tuesday. Later this week, the preliminary US Gross Domestic Product (GDP) Annualized for the second quarter and Personal Consumption Expenditures (PCE) – Price Index data will be in the spotlight.
Daily Digest Market Movers: Gold price loses traction, potential downside seems limited
- US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, said early Tuesday that fears of a near-term broader Middle East conflict have ebbed after Israel and Lebanon’s Hezbollah exchanged fire without further escalation. Nonetheless, the US top General warned that “Iran still poses a significant danger as it weighs a strike on Israel,” per Reuters.
- Hamas rejects fresh Israeli conditions in ceasefire talks in Egypt and insists that Israel be bound by the terms of a proposal laid out by US President Joe Biden and the UN Security Council, per local news agency Aljazeera.
- Federal Reserve (Fed) Bank of San Francisco President Mary Daly said that it’s appropriate for the Fed to begin cutting interest rates, adding that she doesn’t want to keep making policy tighter as inflation comes down.
- Richmond Fed President Thomas Barkin noted that he will take a ‘test and learn’ approach to rate cuts.
- Fed Chair Powell said on Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole, “The time has come for policy to adjust.” Powell further stated that he was confident inflation was on its way towards the Fed’s 2% target.
- The US Durable Goods Orders jumped to 9.9% MoM in July from a -6.9% contraction in June, stronger than the 4% increase expected. This figure registered the most significant gain since May 2020.
- According to the CME FedWatch Tool, the markets have fully priced in a 25 basis points (bps) rate cut, while the possibility of a deeper rate cut stands at 30%, down from 36.5% last Friday.
Technical Analysis: Gold price’s broader bullish picture remains intact
Gold price edges lower on the day. The yellow metal remains capped under a five-month-old ascending channel upper boundary. Nonetheless, a broader bullish outlook prevails as the precious metal is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) holds above the midline near 92.95, indicating sustained strength.
If Gold busts through the resistance areas and sustainably sees bullish candlesticks above the $2,530-$2,540 zone, the record high and the upper boundary of the trend channel, XAU/USD could make a play for the $2,600 psychological barrier.
On the other hand, any follow-through selling below the low of August 22 at $2,470 could draw in more technical sellers and take the Gold down to the next support zone at $2,432, the low of August 15. The key contention level to watch is the $2,360-$2,370 zone, the lower limit of the trend channel and the 100-day EMA.
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 weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.75% | -1.55% | -1.11% | -0.73% | -1.38% | -1.67% | -1.83% | |
| EUR | 0.73% | -0.80% | -0.37% | 0.00% | -0.64% | -0.92% | -1.08% | |
| GBP | 1.53% | 0.80% | 0.43% | 0.83% | 0.17% | -0.11% | -0.26% | |
| CAD | 1.10% | 0.36% | -0.44% | 0.38% | -0.27% | -0.56% | -0.71% | |
| AUD | 0.72% | -0.02% | -0.84% | -0.39% | -0.59% | -0.93% | -1.09% | |
| JPY | 1.36% | 0.66% | -0.25% | 0.28% | 0.64% | -0.28% | -9942.48% | |
| NZD | 1.64% | 0.91% | 0.13% | 0.55% | 0.93% | 0.42% | -0.15% | |
| CHF | 1.79% | 1.07% | 0.26% | 0.70% | 1.08% | 0.44% | 0.15% |
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).
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.