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Gold price ticks lower in a familiar range amid some follow-through USD buying

  • Gold price edges lower as USD benefits from reduced expectations of a 50 bps Fed rate cut.
  • The downside remains limited as traders look to US inflation numbers for a fresh impetus. 
  • The technical setup supports prospects for a breakout through a short-term trading range. 

Gold price (XAU/USD) struggles to capitalize on the previous day’s move up from the $2,485 region and ticks lower during the Asian session on Tuesday amid some follow-through US Dollar (USD) strength. Investors trimmed their bets for a larger interest rate cut by the Federal Reserve (Fed) in September following the release of mixed US monthly jobs report on Friday. This, in turn, lifts the USD Index (DXY), which tracks the Greenback against a basket of currencies, back closer to the monthly peak touched last week and acts as a headwind for the non-yielding yellow metal.

Apart from this, a generally positive tone around the equity markets is seen as another factor undermining demand for the safe-haven Gold price. The XAU/USD, however, remains confined in a multi-week-old trading range as investors await more cues about the size of the Fed rate cut later this month. Hence, the market focus will remain glued to the release of the latest US consumer inflation figures on Wednesday. In the meantime, the prospects for an imminent start of the Fed’s rate-cutting cycle might hold back traders from placing aggressive bearish bets around the metal. 

Daily Digest Market Movers: Gold price is undermined by modest USD strength, positive risk tone

  • Friday’s mixed US employment data reduced the likelihood of a 50-basis point rate cut by the Federal Reserve and continues to benefit the US Dollar, acting as a headwind for the Gold price. 
  • According to the CME Group’s FedWatch tool, traders see a 71% chance of a 25-basis-points rate cut at the next FOMC meeting on September 17-18 and a 29% chance of a 50-bp reduction.
  • Investors opt to wait for the release of the August US consumer price data on Wednesday, which, along with the Producer Price Index on Thursday, could influence Fed rate cut expectations. 
  • New York Fed President John Williams said on Friday that inflation expectations remain well anchored and that monetary policy can be moved to a more neutral stance depending on data.
  • Separately, Fed Governor Christopher Waller noted that maintaining the economy’s forward momentum means the time has come to begin reducing rates and that he is open-minded on the size.
  • Adding to this, Chicago Fed President Austan Goolsbee said that officials are finally beginning to catch up with the broader market’s view that the time has come for a move on policy rates.
  • This suggests that the path of least resistance for the non-yielding XAU/USD remains to the upside and the immediate market reaction to stronger US inflation numbers is more likely to be limited.

Technical Outlook: Gold price extends its consolidative price move around the $2,500 psychological mark

From a technical perspective, the range-bound price action witnessed over the past three weeks or so constitutes the formation of a rectangle on the daily chart. Against the backdrop of the recent rally to the all-time peak, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding in the positive territory, validating the near-term positive outlook for the Gold price. That said, it will still be prudent to wait for a sustained breakout through the trading range resistance, or the all-time peak around the $2.530-2,532 region, before positioning for any further appreciating move.

On the flip side, any meaningful slide is likely to find some support near the $2,485 area ahead of the $2,470 horizontal zone. The latter represents the lower boundary of the aforementioned trading range, which if broken decisively might prompt some technical selling and pave the way for deeper losses. The Gold price might then accelerate the fall towards the 50-day Simple Moving Average (SMA) support, currently pegged near the $2,446 area, before eventually dropping to the $2,410-2,400 region.

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.