Gold price remains on the defensive amid renewed rate jitters, US Dollar demand


  • Gold price edges lower, pressured by reduced Fed rate cut bets. 
  • Political uncertainty in Europe and geopolitical risks should limit the downside.
  • Traders also seem hesitant ahead of the US CPI and FOMC decision on Wednesday.

Gold price (XAU/USD) meets with a fresh supply during the early European trading hours on Tuesday and erodes a part of the previous day's modest recovery gains from the $2,287 area or over a one-month low touched in reaction to the upbeat US jobs data. Investors have been scaling back their bets for an imminent interest rate cut by the Federal Reserve (Fed) in September. This keeps the US Treasury bond yields elevated and assists the US Dollar (USD) to stand tall near a multi-week high touched on Monday, which, in turn, is seen undermining demand for the precious metal. 

Furthermore, the People's Bank of China (PBoC) sharply reduced its buying activities in May, marking an end to its one-and-a-half-year-long buying spree and contributing to driving flows away from the Gold price. That said, political uncertainty in Europe and geopolitical risks should limit deeper losses. Traders might prefer to wait for this week's release of the latest US consumer inflation figures and the FOMC decision on Wednesday for cues about the timing when the Fed will begin cutting rates. This will determine the near-term trajectory for the non-yielding yellow metal. 

Daily Digest Market Movers: Gold price is weighed down by diminishing chance for a September Fed rate cut move

  • The upbeat US Nonfarm Payrolls released on Friday fueled speculations that the Federal Reserve will keep rates higher for longer and turn out to be a key factor acting as a headwind for the non-yielding Gold price. 
  • The chances of a rate cut in September fell to around 50% following the US jobs data and the markets are now pricing in just one cut of 25 basis points this year, either at the November or December policy meeting.
  • The yield on the benchmark 10-year US government bond holds steady above 4.45%, while the yield on the rate-sensitive two-year US Treasury note remains close to 5.0%, which, in turn, is underpinning the US Dollar.
  • The USD Index, which tracks the Greenback against a basket of currencies, stands tall near its highest level since May 14 set on Monday and contributes to capping the upside for the USD-denominated commodity.
  • French President Emmanuel Macron's decision to call snap elections later this month increased political uncertainty in the Eurozone's second-biggest economy and could lend support to the XAU/USD. 
  • Traders also seem reluctant and keenly await this week's key US macro data – the latest consumer inflation figures – and the crucial FOMC decision on Wednesday before placing aggressive directional bets.

Technical Analysis: Gold price could accelerate the fall once the $2,285  pivotal support is broken decisively

From a technical perspective, Friday's breakdown below the 50-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders against the backdrop of negative oscillators on the daily chart. Some follow-through selling below the $2,285 horizontal support will reaffirm the bearish outlook and drag the Gold price to the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 round figure.

On the flip side, the $2,325 horizontal zone is likely to act as an immediate strong barrier ahead of the 50-day SMA support breakpoint, currently pegged near the $2,343-2,344 region. This is followed by the $2,360-2,362 supply zone, which if cleared should allow the Gold price to retest last week’s swing high, around the $2,387-2,388 area and reclaim the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and pave the way for a further appreciating move in the near term.

US Dollar price in the last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Euro.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   1.27% 0.72% 0.94% 1.26% 0.76% 1.08% 0.15%
EUR -1.29%   -0.57% -0.35% 0.01% -0.52% -0.20% -1.14%
GBP -0.73% 0.55%   0.21% 0.55% 0.03% 0.36% -0.59%
CAD -0.95% 0.33% -0.21%   0.34% -0.18% 0.14% -0.81%
AUD -1.28% -0.03% -0.55% -0.32%   -0.52% -0.18% -1.16%
JPY -0.78% 0.50% -0.02% 0.18% 0.54%   0.31% -0.62%
NZD -1.09% 0.19% -0.36% -0.14% 0.20% -0.32%   -0.94%
CHF -0.14% 1.14% 0.59% 0.80% 1.13% 0.62% 0.93%  

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.

 

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