Gold’s glitter is here to stay as eyes turn to US inflation and Fed Chair Warsh
- Gold kicks off the week with a bang on Monday, hitting three-month highs above $4,650.
- US Dollar bears the brunt of US Treasury’s bond-buyback plan, US-Canada tariff woes and looming US sanctions on Iran.
- Gold closed above the 200-day SMA last week and is currently slightly overbought.
Gold is extending its previous week’s advance into Asia on Monday, refreshing three-month highs above $4,650 as bulls remain unstoppable amid a slew of US Dollar (USD) negative factors.
Gold cheers geopolitical risks
Gold continues to capitalize on reduced haven demand for the USD as markets cast doubts on the United States (US) economic outlook following the recent surge in Treasury bond yields and the resultant US Treasury’s commitment to buy back more long bonds.
Additionally, the latest tit-for-tat tariff tensions between the US and Canada also weigh negatively on the Greenback.
Canadian Prime Minister Mark Carney said early Monday that the country would impose its own retaliatory tariffs beginning on September 8 in retaliation for the US imposing 50% tariffs on some Canadian products on Saturday.
Furthermore, receding bets on a US Federal Reserve interest rate hike in September, following a recent series of dismal US economic data, continue to drag on the buck, while keeping non-yielding assets like Gold underpinned.
Meanwhile, Gold is seeing a revival in its role as a traditional safe-haven asset even as US and Iran tensions drag on. The US threatened Iran with what it called "the greatest financial offensive ever marshalled" as it prepared to roll out economic sanctions that target Iran's trade partners.
Iran's Foreign Minister Abbas Araghchi dismissed the threat of new US sanctions as a sign of desperation on Sunday, adding that the expected new measures would fail to defeat Tehran.
All that being said, Gold’s next leg north depends on whether the US July core Personal Consumption Expenditures (PCE) Price Index and Fed Chair Kevin Warsh's speech at the Jackson Hole symposium this week.
Analysts at Deutsche Bank flag the Jackson Hole economic policy symposium on August 27-29 as “the key economic event next week,” noting that this year’s theme is “Financial Innovation: Implications for Payments and Policy." They highlight that investors will be closely watching “the speech by Fed Chair Warsh on Friday.” On the data front, Deutsche Bank points out that “the main release will be the July PCE report on Wednesday, alongside personal income, spending and durable goods orders data,” with their US economists expecting “core PCE to rise by +0.18% MoM, up from +0.1% in June.”
In the meantime, geopolitics will continue to play a major part in the dynamics of the US Dollar and Oil prices, having significant bearing on the bright metal.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,641.11, extending a strong bullish bias as spot gold holds above the 21-day, 50-day, 100-day and 200-day simple moving averages (SMAs), with the latter at $4,516.89 offering a nearby dynamic floor. The Relative Strength Index (14) has pushed into overbought territory around 71.8, suggesting that while the broader uptrend remains intact, upside momentum could be prone to short-term pauses or corrective swings after the latest vertical advance.
On the downside, initial support is seen at the 200-day SMA near $4,516.89, followed by the 100-day SMA around $4,379.67, which reinforces a deeper but still constructive pullback zone. Below there, the 50-day SMA at $4,179.14 and the 21-day SMA at $4,295.91 form additional underlying demand layers that should limit bearish attempts and keep the medium-term structure biased to the upside as long as price continues to trade above these averages.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
