Gold drifts higher ahead of US GDP data
Most recent article: Gold price dips as traders brace for US GDP data
- Gold price rebounds above $2,500 in Thursday’s Asian session.
- Rising Fed rate cut expectations and ongoing conflicts in the Middle East underpin the yellow metal.
- A firmer US Dollar might limit Gold’s upside.
Gold price (XAU/USD) recovers some lost ground on Thursday after bouncing off the weekly lows in the sub-$2,500 region per troy ounce. The expectation of US interest rate cuts might lift the Gold demand as lower interest rates reduce the opportunity cost of holding non-yielding gold. Additionally, the current political uncertainty in the US, geopolitical tensions in the Middle East and global economic concerns contribute to the precious metal’s upside.
On the other hand, the renewed US Dollar (USD) demand could weigh on the USD-denominated Gold price as it makes gold more expensive for most buyers. Investors will closely monitor the second estimate of the US Gross Domestic Product for the second quarter (Q2) on Thursday for more cues about the size and pace of the Federal Reserve (Fed) rate cut. On Friday, the US Personal Consumption Expenditures (PCE) Price Index data for July will take center stage.
Daily Digest Market Movers: Gold price remains firm amid rising rate cut bets
- Demand for gold will continue to be driven by emerging markets, particularly China, India, and Turkey, noted John Reade, Chief Market Strategist at the World Gold Council.
- “US data has failed to give gold any further lift, so the temptation for traders to book some profit after a long run has been rising,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S.
- The US Gross Domestic Product (GDP) growth number for Q2 in the second estimate is expected to grow 2.8%.
- The headline Personal Consumption Expenditures (PCE) Price Index is expected to show an increase of 2.6% YoY in July, compared to 2.5% in June. The core PCE inflation is projected to rise from 2.6% to 2.7% YoY.
- The rate futures markets have fully priced in a 25 basis points (bps) rate cut in September, while the possibility of a deeper rate cut stands at 36.5%, according to the CME FedWatch Tool. Traders see 100 bps Fed easing this year.
Technical Analysis: Gold price offers a bullish outlook in the longer term
The Gold price trades in positive territory on the day. The precious metal remains stuck under a five-month-old ascending channel upper boundary and the all-time high. However, the overall picture is bullish, with the price well above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is confirmed by the 14-day Relative Strength Index (RSI) position above the midline near 61.00, indicating that there is potential for further upside.
The confluence of the all-time high and the upper boundary of the trend channel in the $2,530-$2,535 zone acts as the crucial upside barrier for the yellow metal. Extended gains could see a rally to the $2,600 psychological mark.
The immediate support level for XAU/USD is located at the $2,500 round figure. A decisive break below this level could lead to a significant sell-off towards $2,432, the low of August 15. The next contention level is seen at $2,367, the 100-day EMA.
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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.53% | 0.10% | -0.29% | -0.08% | 0.39% | -0.89% | -0.71% | |
| EUR | -0.54% | -0.46% | -0.82% | -0.61% | -0.14% | -1.43% | -1.25% | |
| GBP | -0.09% | 0.44% | -0.38% | -0.17% | 0.30% | -0.97% | -0.80% | |
| CAD | 0.28% | 0.81% | 0.37% | 0.20% | 0.69% | -0.62% | -0.43% | |
| AUD | 0.08% | 0.62% | 0.17% | -0.21% | 0.47% | -0.81% | -0.62% | |
| JPY | -0.40% | 0.15% | -0.29% | -0.70% | -0.49% | -1.33% | -10010.45% | |
| NZD | 0.91% | 1.43% | 1.00% | 0.62% | 0.83% | 1.28% | 0.19% | |
| CHF | 0.69% | 1.23% | 0.80% | 0.43% | 0.63% | 1.08% | -0.20% |
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).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.