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Gold bulls seem reluctant amid sustained USD buying, trade optimism

  • Gold attracts some dip-buyers following a modest bearish gap opening at the start of a new week.
  • Some follow-through USD buying and the trade optimism act as a headwind for the precious metal.
  • Traders might refrain from placing aggressive bets ahead of the key FOMC decision on Wednesday.

Gold price (XAU/USD) stalls its intraday recovery from an over one-week low and trades around the $3,335 region during the early European session on Monday, down for the third straight day. The US Dollar (USD) gains some follow-through positive traction and turns out to be a key factor undermining the commodity. Apart from this, the upbeat market mood, bolstered by the latest trade optimism, contributes to capping the upside for the safe-haven precious metal.

Meanwhile, USD bulls might refrain from placing aggressive bets and opt to wait for more cues about the Federal Reserve’s (Fed) rate-cut path. Hence, the focus will remain glued to the outcome of a two-day FOMC meeting on Wednesday, which will drive the USD and provide a fresh impetus to the non-yielding Gold price. Furthermore, this week’s important US macro releases should help in determining the next leg of a directional move for the XAU/USD pair.

Daily Digest Market Movers: Gold price struggles to lure buyers amid stronger USD, receding safe-haven demand

  • US President Donald Trump and European Commission President Ursula von der Leyen announced a sweeping trade deal, with a baseline tariff of 15% on most European goods exported to the US. This comes on top of the recent news of a US-Japan trade deal, which, along with reports that US and Chinese officials are meeting again on Monday to extend the trade truce, boosts investors’ appetite for riskier assets.
  • The US Dollar kicks off the new week on a subdued note as traders opt to wait for more cues about the Federal Reserve’s rate-cut path. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting starting on Tuesday. The Fed is widely expected to keep interest rates unchanged amid a still resilient US labor market and concerns that US tariffs could boost inflation in the second half of the year.
  • Meanwhile, Trump has repeatedly attacked Fed Chair Jerome Powell personally over his stance on holding rates. This adds to worries that the Fed’s independence could be under threat on the back of mounting political interference. Furthermore, Fed Governor Chris Waller and Trump appointee Vice Chair for Supervision Michelle Bowman have advocated a rate reduction at the July meeting, keeping the USD bulls on the defensive.
  • Hence, the crucial FOMC decision on Wednesday, along with the accompanying policy statement and Powell’s comments at the post-meeting press conference, will be scrutinized for cues about the Fed’s rate-cut path. Apart from this, investors this week will also confront important US macro releases, which will play a key role in determining the USD trajectory and provide a fresh impetus to the non-yielding yellow metal.

Gold price not out of the woods yet; ascending trend-channel breakdown remains in play

From a technical perspective, Friday’s breakdown below a short-term ascending trend-channel support and the 50% Fibonacci retracement level of the recent upswing from the June swing low was seen as a key trigger for the XAU/USD bears. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. The commodity, however, showed some resilience below the 61.8% Fibo. retracement level and stages a modest recovery from the $3,312-3,311 region on Monday. Hence, it will be prudent to wait for some follow-through selling below the said area before positioning for deeper losses. The commodity could then weaken further below the $3,300 mark and retest the monthly low, around the $3,283-3,282 zone.

On the flip side, any further move up is more likely to confront stiff resistance and remain capped near the 200-period Simple Moving Average (SMA) on the 4-hour chart. The said barrier is pegged near the $3,351-3,352 region, above which a bout of short-covering could lift the Gold price to the $3,371-3,373 supply zone. Some follow-through buying should pave the way for a move towards reclaiming the $3,400 mark before the XAU/USD climbs further to the $3,438-3,440 static barrier.

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.