Gold surrenders modest intraday gains amid risk-on mood, downside seems limited

Gold price retreats from a multi-day top as the upbeat market mood undermines safe-haven assets.
Rising Fed rate cut bets keep the USD bulls on the defensive and offer support to the precious metal.
Traders now look forward to the release of the US PPI report for some meaningful opportunities.

Gold (XAU/USD) struggles to capitalize on its modest Asian session gains to a three-day peak and attracts some intraday sellers near the $3,375 region. The global risk sentiment remains well supported by the optimism over an extension of the US-China trade truce for another three months and the US-Russia summit on Friday aimed at ending the war in Ukraine. This, in turn, acts as a headwind for the safe-haven precious metal. However, a combination of supporting factors favors bullish traders and backs the case for the emergence of some dip-buying.

The US Dollar (USD) selling bias remains unabated in the wake of the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs in September. Furthermore, traders have been pricing in the possibility that the Fed will cut interest rates twice by the end of this year, which, in turn, should continue to act as a tailwind for the non-yielding Gold. This makes it prudent to wait for some follow-through selling before confirming that the recent bounce from the $3,331 area, or over a one-week low touched on Tuesday, has run out of steam.

Daily Digest Market Movers: Gold price bulls seem reluctant to place aggressive bets amid the risk-on mood

Asian stock markets, except Japan's Nikkei225, prolonged the recent bullish run, tracking the overnight record-setting rise in the US benchmark S&P 500 and the tech-heavy Nasdaq Composite Index for the second straight session.
The US Dollar stages a modest recovery from a two-week low touched earlier this Thursday, though the upside potential seems limited amid rising bets for more interest rate cuts by the Federal Reserve than previously expected.
According to the CME Group's FedWatch Tool, the US central bank is all but certain to lower borrowing costs by 25 basis points at the September policy meeting and is expected to deliver at least two rate cuts by the end of this year.
The expectations were reaffirmed by Tuesday's mostly in-line US consumer inflation figures. Moreover, the July US Nonfarm Payrolls report pointed to signs of weakness in the labor market and backs the case for more easing.
Meanwhile, US President Donald Trump escalated his pressure on Fed Chair Jerome Powell to cut interest rates. Furthermore, US Treasury Secretary Scott Bessent said that the Fed should think about a 50-bps rate cut next month.
Chicago Fed President Austan Goolsbee said that he’s more concerned about last month’s rise in underlying inflation than an unusually weak jobs report, and he may not be inclined to support an interest rate cut in September.
Separately, Atlanta Fed President Raphael Bostic acknowledged a general weakening in the latest round of labor data and noted that tariffs may cause structural changes, though he refrained from commenting on rate cuts.
The US Treasury bond yields remain depressed as investors assess the likely impact of higher tariffs on the US economy and ahead of the US Producer Price Index, due for release later during the North American session.

Gold price constructive technical setup backs the case for the emergence of some dip-buying at lower levels

The overnight breakout through the $3,358-3,360 barrier comes on top of the resilience below the 200-period Simple Moving Average (SMA) on the 4-hour chart earlier this week and favors the XAU/USD bulls. That said, oscillators on hourly/daily charts have been struggling to gain positive traction, making it prudent to wait for some follow-through buying before positioning for further gains.

In the meantime, the Asian session peak, around the $3,375 area, could act as an immediate resistance, above which the Gold price could aim towards reclaiming the $3,400 round figure. This is closely followed by last week's swing high, around the $3,409-3,410 area, which, if cleared, should pave the way for a move towards the $3,422-3,423 intermediate resistance. The momentum could eventually lift the commodity beyond the $3,434-3,435 region, towards challenging the all-time peak, around the $3,500 psychological mark touched in April.

On the flip side, the weekly low, weakness below the $3,243-3,242 region (200-period SMA on H4) could find some support near the $3,331 area, or the weekly low. Some follow-through selling could make the Gold price vulnerable to accelerate the slide to the $3,300 round figure. A convincing break below the latter would shift the near-term bias in favor of bearish traders and set the stage for a further depreciating move.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

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.

What are the key assets to track to understand risk sentiment dynamics?

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.

Which currencies strengthen when sentiment is "risk-on"?

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.

Which currencies strengthen when sentiment is "risk-off"?

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.