Gold price holds steady above $2400 mark amid mixed fundamental ...
Gold price (XAU/USD) touched a one-week low on Monday, although it managed to defend and rebound from the 50-day Simple Moving Average (SMA) support around the $2,365-2,364 region. The incoming softer US macro data fueled worries about a downturn in the world's largest economy and raised expectations for bigger interest rate cuts by the Federal Reserve (Fed). This led to the recent slump in the US Treasury bond yields, which, along with the worsening Middle East crisis, offers some support to the safe-haven precious metal.
That said, a turnaround in the risk sentiment – as depicted by a relief rally in the equity markets – could act as a headwind for the Gold price amid rebounding US bond yields, which offers support to the US Dollar (USD). Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bullish traders and suggests that the path of least resistance for the XAU/USD is to the upside. Hence, weakness below the $2,400 mark might continue to attract buyers and remain limited in the absence of relevant US economic releases.
Daily Digest Market Movers: Gold price draws support from bets for bigger Fed rate cuts and Middle East tensions The US macro data released last week showed that business activity in the manufacturing sector contracted more sharply than expected in July and jobs growth slowed more than anticipated last month. This sparks fear of a possible recession in the US and the prospects for a more aggressive policy easing by the Federal Reserve, which, in turn, triggered the recent steep decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond slumped to its lowest level since mid-2023 as traders are now pricing in a near 100% chance of a 50-basis points Fed rate cut in September. This, to a larger extent, overshadowed Tuesday's upbeat release of the US Services PMI, which improved to 51.4 in July from 48.8 in the previous month and surpassed consensus estimates for a reading of 51. Iran, Hamas and the Lebanese group Hezbollah pledged to retaliate against Israel for last week’s assassination of Hamas political chief Ismail Haniyeh in Tehran, further underpinning the safe-haven metal. That said, the risk-on impulse, along with rebounding US Treasury bond yields and a modest US Dollar uptick, fails to assist the commodity in attracting meaningful buyers during the Asian session on Tuesday. Technical Analysis: Gold price looks to build on the overnight bounce from the 50-day SMA pivotal supportFrom a technical perspective, the overnight bounce reaffirmed strong support near the 50-day SMA, currently pegged near the $2,365-2,364 area. This should now act as a key pivotal point for short-term traders, which if broken decisively should pave the way for an extension of the recent pullback from the vicinity of the all-time peak. Some follow-through selling below last week's swing low, around the $2,353-2,352 region, will reaffirm the negative bias and drag the Gold price to the $2,342 zone, or the 100-day SMA. A convincing break below the latter might shift the near-term bias in favor of bearish traders and prompt aggressive technical selling.
On the flip side, the $2,430 level could offer some immediate resistance ahead of the $2,448-2,450 horizontal zone. The next relevant hurdle is pegged near the $2,468-2,469 region, above which the Gold price could aim to challenge the all-time top near the $2,483-2,484 area touched in July. The latter is followed by the $2,500 psychological mark, which if cleared decisively will set the stage for a further near-term appreciating move.
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.
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