Forex Trading, News, Systems and More

Gold price slides to over one-week low amid hawkish Fed, bears await key US data

  • Gold price drifts lower for the second straight day amid the Fed’s hawkish outlook.
  • A September rate cut by the Fed remains on the table, which caps gains for the USD.
  • Persistent geopolitical tensions contribute to limiting the downside for the XAU/USD.

Gold price (XAU/USD) remains under some selling pressure for the second successive day and drops to over a one-week low during the Asian session on Wednesday. Comments from Federal Reserve (Fed) Governors Michelle Bowman and Lisa Cook on Tuesday suggested that the central bank is unlikely to kickstart its rate-cutting cycle anytime soon amid a resilient US economy. The hawkish outlook triggers a modest uptick in the US Treasury bond yields, which acts as a tailwind for the US Dollar (USD) and undermines the non-yielding yellow metal.

Investors, meanwhile, are still pricing in a greater chance of a September Fed rate cut move in the wake of weaker inflation data for May. This, along with the risk of a further escalation of geopolitical tensions in the Middle East and the protracted Russia-Ukraine war, lends some support to the safe-haven Gold price. Traders might also prefer to wait for Thursday’s release of the final US Q1 GDP print and the Personal Consumption Expenditures (PCE) Price Index on Friday before positioning for the next leg of a directional move for the XAU/USD. 

Daily Digest Market Movers: Gold price continues to be undermined by Fed rate jitters

  • Federal Reserve policymakers continue to argue in favor of keeping rates higher for longer, which pushes the US Treasury bond yields higher and caps the upside for the non-yielding Gold price.
  • Fed Governor Michelle Bowman showed a willingness to raise borrowing costs if inflation progress stalls and said on Tuesday that they are not yet at the point where it is appropriate to cut rates.
  • Separately, Fed Governor Lisa Cook noted that it would be appropriate to cut rates at some point, though a rise in inflation expectations would imply keeping monetary policy restrictive for longer.
  • A survey from the Conference Board showed on Tuesday that the US Consumer Confidence Index ticked lower to 100.4 in June from 101.3 in the previous month amid worries about the economic outlook. 
  • This comes on top of the recent weakness in US Retail Sales and signs of moderating inflationary pressures, which keeps hopes alive for a September Fed rate cut and acts as a headwind for the US Dollar. 
  • Russia’s Foreign Ministry summoned US Ambassador Lynne Tracy earlier this week and blamed the US for a barbaric attack in Crimea, and said that retaliatory measures would “definitely follow”.
  • Concerns about an all-out war between Israel and Lebanon remain alive in the wake of soaring tensions on provocations by Hezbollah, helping limit the downside for the safe-haven precious metal. 
  • Traders also seem reluctant to place aggressive directional bets and now look forward to the release of the Personal Consumption Expenditures (PCE) Price Index on Friday for some meaningful impetus.

Technical Analysis: Gold price bears now await a break below ascending trendline support

From a technical perspective, the recent failure to capitalize on the strength beyond the 50-day Simple Moving Average (SMA) and the subsequent slide favors bearish traders. Moreover, oscillators on the daily chart have again started gaining negative traction, suggesting that the path of least resistance for the Gold price is to the downside. That said, it will still be prudent to wait for a sustained break below a short-term ascending trendline support, currently pegged near the $2,310 area, before positioning for further losses. The XAU/USD might then weaken further below the $2,300 mark and retest the monthly swing low, around the $2,287-2,286 region. Some follow-through selling will reaffirm the negative bias and expose the 100-day SMA support near the $2,250 area. The downward trajectory could extend further towards the $2,225-2,220 region before the commodity eventually drops to the $2,200 round-figure mark.

On the flip side, any meaningful positive move now seems to confront stiff resistance near the 50-day SMA, currently near the $2,339-2,340 region, ahead of Friday’s swing high, around the $2,368-2,369 zone. A sustained strength beyond the latter could lift the Gold price towards the $2,387-2,388 intermediate hurdle en route to the $2,400 round-figure mark. Some follow-through buying will negate any near-term negative bias and allow the XAU/USD to aim back to challenge the all-time peak, around the $2,450 area touched in May.

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.