Gold price maintains its offered tone below 50-day SMA, looks to Fed Chair Powell's speech

Gold price meets with a fresh supply on Tuesday amid some follow-through USD buying.
Rising bets for a September Fed rate cut should limit any further losses for the XAU/USD.
Fed Chair Powell’s speech eyed for some impetus ahead of FOMC minutes on Wednesday.

Haresh Menghani FXStreet

Gold price (XAU/USD) attracts fresh sellers during the Asian session on Tuesday and reverses the previous day's positive move back closer to the 50-day Simple Moving Average (SMA) pivotal resistance. As investors await more cues about the Federal Reserve's (Fed) rate-cut path, the US Dollar (USD) gains some follow-through traction and turns out to be a key factor exerting downward pressure on the commodity. Apart from this, a generally positive tone around the equity markets further contributes to driving flows away from the safe-haven precious metal.

The markets, meanwhile, have been pricing in a greater chance that the Fed will lower borrowing costs in September and cut rates again in December. The bets were lifted by the US ISM PMI released on Monday, which showed that the manufacturing sector contracted for the third straight month in June and prices paid by factories for inputs dropped to a six-month low. This, along with retreating US Treasury bond yields, might cap gains for the USD. Apart from this, China's economic woes, geopolitical risks and political uncertainty could offer support to the Gold price.

Traders might also prefer to move to the sidelines ahead of Fed Chair Jerome Powell's speech later this Tuesday and the FOMC meeting minutes, due for release on Wednesday. Furthermore, the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday might influence expectations about the Fed's future policy decision. This, in turn, will play a key role in driving the sentiment surrounding the Greenback and help in determining the next leg of a directional move for the Gold price.

Daily Digest Market Movers: Gold price remains depressed amid sustained USD buying, ahead of Powell's speech

Softer US macro data released on Monday reinforced expectations that the Federal Reserve will cut interest rates in September and again in December, prompting some intraday short-covering around the Gold price.
The Institute for Supply Management (ISM) said its Manufacturing PMI remained in contraction territory for the second straight month and edged lower from 48.7 to 48.5 in June, missing consensus estimates.
Additional details of the report showed that the Employment Index declined to 49.3 from 51.1 in May and the Prices Paid Index – the inflation component – retreated from 57 to 52.1 during the reported month.
This comes on top of the US PCE Price Index on Friday, which showed that inflation in May slowed to its lowest annual rate in more than three years and lifted bets for an imminent start of the Fed's rate-cutting cycle.
The US Treasuries sold off amid increasing odds of Donald Trump being elected as US President again later this year, which prompted some US Dollar short-covering and capped the upside for the XAU/USD.
Investors now look forward to Fed Chair Jerome Powell's speech later this Tuesday for some meaningful impetus ahead of the FOMC minutes on Wednesday and the US Nonfarm Payrolls report on Friday.
Meanwhile, Tuesday's US economic docket features the release of JOLTS Job Openings data, which might influence the USD price dynamics and further contribute to producing short-term trading opportunities.

Technical Analysis: Gold price could find some support near the overnight swing low ahead of $2,300 round figure

From a technical perspective, the Gold price, so far, has been struggling to make it through the 50-day Simple Moving Average (SMA) pivotal resistance. The said barrier is currently pegged near the $2,337-2,338 region and should act as a key pivotal point. A sustained strength beyond should pave the way for a move towards the next relevant hurdle near the $2,360-2,365 supply zone. Some follow-through buying should allow bulls to reclaim the $2,400 round-figure mark and aim towards challenging the all-time peak, around the $2,450 area touched in May.

On the flip side, weakness below the $2,319-2,318 area, or the overnight swing low, could find some support near the $2,300 mark ahead of the $2,285 horizontal zone. Failure to defend the said support levels will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day SMA, currently near the $2,258 area. The downward trajectory could eventually drag the XAU/USD to the $2,225-2,220 region en route to the $2,200 round-figure mark.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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