Gold price turns volatile as US weekly jobless claims remain surprisingly below forecasts
- Gold price has slipped below $1,980.00 as investors await for Federal Reserve’s monetary policy decision.
- United States inflation cools beyond expectations but needs a continuation of the policy-tightening spell to return to the 2% target.
- Investors seek more guidance about BRICS’ gold-backed currency, which would be used to settle international payments.
Gold price (XAU/USD) drops below the immediate support of $1,980.00 after printing a fresh two-month high of $1,987.53 on Thursday. The precious metal has faced pressure as initial jobless claims for the week ending July 16 have surprisingly remained below expectations. The economic data has landed at 228K from the prior release of 237K while investors were anticipating a jump to 242K. Earlier, the yellow metal struggled to find any direction as investors shifted their focus toward the interest-rate decision by the Federal Reserve (Fed), which will be announced on July 26. The Fed has signaled that two more interest-rate hikes this year are appropriate, but investors are still in favor of only one more interest rate increase.
United States inflation cooled significantly in June, continuing its softening spell as gasoline prices have dropped broadly and demand for second-hand automobiles remained soft. This week, the US economic calendar is light, so investors will likely keep an eye on guidance about interest rates. In addition to that, investors seek more guidance about the BRICS’ gold-backed currency, which would be used to settle international payments.
Daily Digest Market Movers: Gold price faces pressure as US weekly jobless claims ease
- Gold price finds support near $1,978.00 after a corrective move from $1,987.50 as the upside in the US Dollar Index (DXY) seems limited.
- The US Dollar Index rebounded after correcting to near 100.00. The upside in the USD index seems restricted amid an absence of supportive fundamentals.
- Some strength is observed in the US Dollar Index after a sharp declining move as investors are awaiting the interest-rate decision by the Federal Reserve (Fed).
- Consumer spending momentum has slowed but the broader picture shows it is still expanding.
- Fed Chair Jerome Powell and other members of the FOMC have been reiterating that two more interest-rate hikes are appropriate to tighten the grip on inflation.
- Even as inflation decelerated sharply in June, the Fed has not announced victory over inflation yet.
- Inflation softened significantly in June as prices of second-hand automobiles dropped.
- While Fed policymakers are favoring two more interest-rate hikes, investors anticipate only one more increase by year-end.
- No matter if Fed policymakers would raise interest rates once or twice, the central bank would not discuss rate cuts this year.
- Higher interest rates by the Fed have hit the housing sector. Monthly Housing Starts data reported by the United States Census Bureau on Wednesday showed that demand for new property has fallen to an annualized rate of 1.434 million in June, less than the estimates of 1.48 million and the prior release of 1.559 million.
- The market mood is expected to turn cautious as the US corporate earnings season has kicked off. In addition to that, the Chinese economy has attracted steep cuts in economic growth prospects after weaker-than-expected second-quarter Gross Domestic Product (GDP) numbers.
- Meanwhile, investors are focusing on a new gold-backed currency announced by BRICS (Brazil, Russia, India, China, and South Africa). Investors are anticipating a formal announcement at the group’s next summit in August.
- The introduction of a new gold-backed currency is expected to give a tough fight to the US Dollar Index as it could be used for making international payments.
Technical Analysis: Gold price dips around $1,980
Gold price settles comfortably above the 20-daily Exponential Moving Average (EMA), confirming that the short-term trend is bullish. The precious metal has reached 50% Fibonacci retracement or the halfway point of the latest swing (plotted from May 4 high at $2,067.00 to June 29 low at $1,893.70) at $1,983.00.
Momentum oscillators have shifted into bullish territory, showing no signs of divergence or any oversold signals.
Fed FAQs
What does the Federal Reserve do, and how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
