Gold climbs to near two-week high on worries over Fed’s independence
- Gold price gains ground in Tuesday’s early European session.
- Concerns over Fed’s independence and potential US Fed rate cut support the Gold price.
- The US CB Consumer Confidence and Durable Goods Orders reports will be the highlights later on Tuesday.
The Gold price (XAU/USD) rises to a two-week high near $3,385 during the early European trading hours on Tuesday. The precious metal edges higher amid concerns about the US Federal Reserve’s (Fed) independence after the report that US President Donald Trump says he is removing Fed Governor Lisa Cook. Additionally, signs that the US central bank will resume cutting interest rates provide some support to the yellow metal, as lower interest rates could reduce the opportunity cost of holding Gold.
Looking ahead, the US Conference Board’s Consumer Confidence, Durable Goods Orders and the Richmond Fed Manufacturing Index reports are due later on Tuesday. Later this week, the key US economic data will be released, including Gross Domestic Product (GDP) for the second quarter and Personal Consumption Expenditures (PCE) Price Index data for July. If the report shows stronger-than-expected growth or any signs of hotter inflation, this might boost the Greenback and weigh on the USD-denominated commodity price.
Daily Digest Market Movers: Gold price drifts higher on Fed’s independence and US rate cut hopes
- "Gold prices reached their highest level in two weeks amid heightened political uncertainty after President Donald Trump fired Federal Reserve Governor Lisa Cook. Meanwhile, Fed Chair Jerome Powell last Friday signalled a possible rate cut in September, highlighting growing risks to the labour market but also noting inflation remained a threat and that no decision has been finalised,” said Jigar Trivedi, Senior Research Analyst at Reliance Securities.
- "I have determined that there is sufficient cause to remove you from your position," Trump said in a letter to Cook posted on his Truth Social platform, claiming there was enough evidence that Cook had made false statements on mortgage applications.
- Fed Chair Jerome Powell stated at the Jackson Hole symposium that the US central bank could consider a rate cut at its next policy meeting in September.
- Powell added that the US economy is facing a “challenging situation,” with inflation risks now tilted to the upside and employment risks to the downside.
- Dallas Fed President Lorie Logan on Monday said she feels the Fed has more room to reduce its reserves, and she expects banks to turn to its standing repo facility next month to alleviate any liquidity pressures.
- Markets are now pricing in nearly an 84.3% possibility for a cut of at least a quarter-point at the Fed’s policy meeting next month, down slightly from the 84.7% in the previous session, according to CME's FedWatch tool, but well above the 61.9% expectation a month ago.
Gold keeps the bullish vibe in the longer term
The Gold price trades in positive territory on the day. According to the daily chart, the positive outlook of the precious metal remains intact as the price holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 55.0. This displays bullish momentum in the near term.
On the bright side, the key upside barrier for Gold emerges in the $3,400-3,410 zone, representing the psychological level, the upper boundary of the Bollinger Band, and the high of August 8. Extended gains could pave the way to $3,439, the high of July 23. The next resistance level is seen at $3,500, the round figure, and the high of April 22.
In the bearish event, the initial support level for the yellow metal is located at $3,325, the low of August 21. A breach of this level could see a drop to $3,285, the lower limit of the Bollinger Band. The crucial contention level to watch is $3,270, the 100-day EMA.
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
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
