Gold price remains confined in a multi-week-old range as bulls seem reluctant
- Gold price attracts some safe-haven flows amid persistent trade-related uncertainties.
- Mixed Fed rate cut cues keep the USD depressed and further benefit the XAU/USD pair.
- The range-bound price action warrants some caution before placing fresh bullish bets.
Gold price (XAU/USD) trades with a positive bias for the second consecutive day on Monday, though it lacks bullish conviction and remains confined in a multi-week-old trading range. Concerns over the economic impact of higher US tariffs keep investors on edge and continue to act as a tailwind for the safe-haven precious metal. Furthermore, the US Dollar (USD) remains on the defensive below its highest level since June 23, touched last week amid mixed signals over the Federal Reserve's (Fed) rate-cut path, and lends additional support to the commodity.
However, the growing acceptance that the US central bank would delay cutting interest rates, amid the evidence that the Trump administration's increasing import taxes are passing through to consumer prices, caps the non-yielding Gold price. Moreover, the recent range-bound price action warrants caution for the XAU/USD bulls and makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move. In the absence of any relevant US macro data on Monday, trade headlines might continue to influence the precious metal.
Daily Digest Market Movers: Gold price draws support from trade jitters, subdued USD demand
- The uncertainty surrounding US President Donald Trump's erratic trade policies assisted the safe-haven Gold price to attract some buyers for the second straight day on Monday. Trump has outlined steep tariffs against several major economies, which are set to take effect from August 1. Moreover, a report suggested that Trump was considering a 15% to 20% levy on the European Union, even if a trade deal is reached.
- Federal Reserve Governor Christopher Waller last week backed the case for a July interest rate cut amid mounting risks to the economy and expectations that tariffs are likely to have a limited impact on inflation. This keeps the US Dollar on the defensive below a nearly one-month top touched last Thursday and further supports the precious metal. Traders, however, seem convinced that the Fed would wait until September.
- Moreover, the current market pricing indicates the possibility of two 25 basis point rate cuts by the year-end. Adding to this, Fed Chair Jerome Powell expects inflation to rise this summer in the wake of higher US tariffs. This is seen acting as a tailwind for the USD and capping gains for the XAU/USD pair.
- Meanwhile, data released on Friday showed that the University of Michigan’s US Consumer Sentiment Index unexpectedly rose to 61.8 in July. This pointed to an increasing optimism among consumers regarding the economic conditions, both current and future, which further helps limit USD losses.
- There isn't any relevant market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of Fed rate-cut expectations. Apart from this, fresh trade-related developments could drive the commodity ahead of the global flash PMIs during the latter part of the week.
Gold price needs to break out through trading range hurdle for bulls to seize near-term control
From a technical perspective, any subsequent move up is likely to face stiff resistance near the $3,365-3,366 region, or the top boundary of the short-term trading range. A convincing breakout through the said barrier would be seen as a key trigger for bulls and lift the Gold price to the $3,400 round figure. The positive momentum could extend further towards testing the next relevant hurdle near the $3,434-3,435 area.
On the flip side, the $3,325-3,322 region could offer some support ahead of the $3,300 round figure. Some follow-through selling below the $3,283-3,282 area should pave the way for deeper losses and drag the Gold price to the June swing low, around the $3,248-3,247 zone. Failure to defend the said support levels might shift the near-term bias in favor of bearish traders.
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.