Gold price edges higher as USD bulls turn cautious ahead of US consumer inflation data
- Gold price regains positive traction following the overnight slump to a one-week trough.
- Rising Fed rate cut bets cap the recent USD move up and offer support to the commodity.
- A positive risk tone warrants caution for the XAU/USD bulls ahead of the US inflation data.
Gold price (XAU/USD) attracts some buyers during the Asian session and recovers a part of Monday's heavy losses to the $3,341 area, or over a one-week low. The US Dollar (USD) struggles to capitalize on its gains registered over the past two days as traders opt to move to the sidelines and wait for the release of the latest US consumer inflation figures later today. The US Consumer Price Index (CPI) will play a key role in influencing market expectations about the Federal Reserve's (Fed) rate-cut path, which, in turn, will drive the US Dollar (USD) and provide a fresh impetus to the non-yielding yellow metal.
Heading into the key data risk, bets that the US central bank will cut interest rates more than previously anticipated hold back the USD bulls from placing aggressive bets and act as a tailwind for the Gold price. That said, the upbeat market mood, bolstered by an extension of the US-China trade truce and the US-Russia summit aimed at ending the war in Ukraine, might cap the safe-haven precious metal's upside. Moreover, the recent repeated failures to find acceptance above the $3,400 mark warrant some caution for the XAU/USD bulls positioning for any meaningful intraday appreciating move.
Daily Digest Market Movers: Gold price draws support from the lack of follow-through USD buying
- Gold price fell sharply on Monday as easing geopolitical tensions weighed heavily on traditional safe-haven assets. Investors remain hopeful that the upcoming US-Russian summit on Friday will increase the chances of ending the prolonged war in Ukraine. Furthermore, some follow-through US Dollar buying contributed to the precious metal's overnight slump of around 1.65%.
- Traders are overwhelmingly betting that the US Federal Reserve will lower borrowing costs by 25 basis points in September and deliver at least two rate cuts by the end of this year. The expectations were lifted by a series of disappointing US economic data released recently, including the closely watched Nonfarm Payrolls report, which signaled that the economy could be weakening.
- This, in turn, fails to assist the USD to build on a two-day-old positive move and helps revive demand for the non-yielding yellow metal during the Asian session on Tuesday. Traders, however, might refrain from placing aggressive directional bets and opt to move to the sidelines ahead of the US consumer inflation figures, which could provide more cues about the interest-rate outlook.
- Traders this week will also confront the release of the US Producer Price Index (PPI) on Thursday, along with US monthly Retail Sales data and Michigan Consumer Sentiment Index on Friday. Apart from this, speeches from a slew of influential FOMC members will play a key role in driving the near-term USD price dynamics and provide some meaningful impetus to the XAU/USD pair.
- On the trade-related front, US President Donald Trump signed an executive order on Monday extending a trade truce with China for another three months, easing market concerns about a trade war between the world's two largest economies. Earlier, Trump posted on his social media account, saying that gold would not be subject to tariffs, though he fell short of offering any further details.
Gold price defends 200-SMA pivotal support on H4, around the $3,344-3,342 region
From a technical perspective, the XAU/USD pair manages to defend the 200-period Simple Moving Average (SMA) pivotal support on the 4-hour chart, currently pegged near the $3,344-3,342 region. Given that oscillators on the said chart have been gaining negative traction, a convincing break below could drag the Gold price to the $3,315 intermediate support en route to the $3,300 round figure. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.
On the flip side, any subsequent strength beyond the $3,358-3,360 region is likely to confront a stiff hurdle near the $3,380 area. A sustained move above should allow the Gold price to make a fresh attempt to conquer the $3,400 mark. Some follow-through buying beyond last week's swing high, around the $3,409-3,410 area, would negate the negative outlook and lift the XAU/USD pair to the next relevant hurdle near the $3,422-3,423 area. The momentum could extend further towards the $3,434-3,435 strong horizontal barrier, which, if cleared decisively, might expose the all-time peak, around the $3,500 psychological mark touched in April.
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.