Gold price struggles to gain ground, downside potential seems limited
Most recent article: Gold sells off in line with technicals and US Dollar bounce
- Gold price trades with bearish bias on Tuesday, largely ignoring a combination of supporting factors.
- Fed rate cut bets drag the USD to a nearly two-month low, but does little to lure XAU/USD bulls.
- Traders now look forward to this week’s important US macro data and key central bank event risks.
Gold price (XAU/USD) trades in negative territory during the European session on Tuesday and erodes a part of the previous day's recovery gains from the $2,315-$2,314 area, or over a three-week low. The downside, however, seems cushioned in the wake of firming expectations that the Federal Reserve (Fed) will cut interest rates later this year, bolstered by disappointing US macro data on Monday. This, in turn, drags the US Dollar (USD) to a near two-month low and should continue to act as a tailwind for the non-yielding yellow metal.
Apart from this, persistent geopolitical risks validate the near-term positive outlook for the Gold price and support prospects for further appreciation. Hence, any subsequent decline might be seen as a buying opportunity and is more likely to remain limited. Traders might also prefer to wait on the sidelines ahead of other important US macro releases this week, including the Nonfarm Payrolls (NFP) report on Friday. Apart from this, key central bank event risks – the Bank of Canada (BoC) decision on Wednesday and the European Central Bank (ECB) meeting on Thursday – could provide some impetus to the XAU/USD and help determine the near-term trajectory.
Daily Digest Market Movers: Gold price fails to attract follow-through buying despite Fed rate cut bets
- Signs of easing inflationary pressures and slowing economic growth lifted bets for an imminent rate cut by the Federal Reserve this year, which should continue to drive flows towards the non-yielding Gold price.
- The US Bureau of Economic Analysis (BEA) reported on Friday that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.7% and the core gauge rose 2.8% on a yearly basis, matching expectations.
- Data published on Monday showed that the US Institute for Supply Management's (ISM) Manufacturing PMI fell to 48.7 in May from the 49.2 previous, led by a slump in new goods orders by the most in nearly two years.
- This, in turn, triggered a fresh leg down in the US Treasury bond yields, dragging yields on the rate-sensitive two-year US government bond and the benchmark 10-year note to their lowest level since May 21.
- The US Dollar slides to its lowest level since April 10, which, along with geopolitical tensions in the Middle East, could offer additional support to the safe-haven XAU/USD and support prospects for some upside.
- Traders now look forward to the US economic docket, featuring the release of JOLTS Job Openings and Factory Orders data for short-term opportunities later during the early North American session this Tuesday.
- The attention will then turn to the US ADP report on private-sector employment scheduled on Wednesday, which will be followed by the official jobs data, popularly known as the Nonfarm Payrolls (NFP) report on Friday
- Apart from this, investors this week will take cues from key central bank event risks – the Bank of Canada (BoC) decision on Wednesday and the highly-anticipated European Central Bank (ECB) meeting on Thursday.
Technical Analysis: Gold price manages to hold above 50-day SMA pivotal support near $2,334 region
From a technical perspective, the $2,360 region (Friday's swing high) is likely to act as an immediate hurdle ahead of the $2,364 level. Some follow-through buying beyond the latter will be seen as a fresh trigger for bullish traders and lift the Gold price towards the $2,385 intermediate hurdle en route to the $2,400 mark. The momentum could extend to the $2,425 zone en route to the $2,450 region or the all-time peak touched in May.
On the flip side, the 50-day Simple Moving Average (SMA), currently pegged near the $2,334 area, should act as immediate support ahead of the $2,325 horizontal zone and the overnight swing low, around the $2,315-2,314 region. Given that oscillators on the daily chart have just started gaining negative traction, a convincing break below should pave the way for deeper losses. The Gold price might then weaken further below the $2,300 mark and decline further towards testing the next relevant support near the $2,285-$2,284 region.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | 0.07% | 0.14% | 0.36% | -0.03% | 0.16% | -0.10% | |
| EUR | -0.03% | 0.04% | 0.10% | 0.33% | -0.06% | 0.11% | -0.12% | |
| GBP | -0.09% | -0.05% | 0.06% | 0.31% | -0.11% | 0.08% | -0.18% | |
| CAD | -0.15% | -0.10% | -0.08% | 0.24% | -0.17% | 0.00% | -0.22% | |
| AUD | -0.36% | -0.36% | -0.32% | -0.23% | -0.42% | -0.21% | -0.49% | |
| JPY | 0.02% | 0.05% | 0.10% | 0.16% | 0.41% | 0.18% | -0.07% | |
| NZD | -0.16% | -0.13% | -0.07% | -0.02% | 0.21% | -0.19% | -0.23% | |
| CHF | 0.09% | 0.10% | 0.14% | 0.22% | 0.44% | 0.04% | 0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
