- Gold price continues losing ground for the second straight day and drops to a two-week low.
- The downfall could be attributed to some technical selling, though it is likely to remain limited.
- September Fed rate cut bets and the risk-off mood could lend support to Gold ahead of the US data.
Gold price (XAU/USD) remains under heavy selling pressure for the second straight day and drops to a two-week low during the early European session on Thursday. That said, a combination of supporting factors assists the commodity in attracting some buyers near the $2,365 area and trimming a part of intraday losses. Growing acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September keeps the US Dollar (USD) depressed below a two-week high touched on Wednesday and acts as a tailwind for the non-yielding yellow metal.
Apart from this, the risk-off impulse – as depicted by a weaker tone across the global equity markets, which tends to benefit traditional safe-haven assets, further lends some support to the Gold price. Traders, meanwhile, might refrain from placing aggressive directional bets and prefer to wait for more cues about the Fed's policy path. Hence, the focus will remain glued to important US macro data – the Advance Q2 GDP print due for release later this Thursday and the crucial Personal Consumption Expenditures (PCE) Price Index on Friday.
Daily Digest Market Movers: Gold price finds some support amid risk-off mood, softer USD
- Gold price attracts some follow-through sellers on Thursday and dives to a two-week low, though any further depreciating move seems elusive in the wake of the risk-off impulse and dovish Federal Reserve expectations.
- The global risk sentiment took a hit following the release of mostly disappointing global flash PMIs on Wednesday, which added to worries about an economic slowdown and should offer some support to the safe-haven metal
- The HCOB's preliminary survey indicated a broad-based weakening of economic conditions in the Eurozone amid a deepening manufacturing downturn, which was accompanied by a slowdown in the service sector.
- The S&P Global reported that the business activity in the US private sector continued to expand at a healthy pace in July amid a pick-up in the services sector, though it was offset by an easing in the manufacturing industry.
- Former New York Federal Reserve President William Dudley on Wednesday called for a rate cut as soon as next week in the wake of recession concerns, reaffirming bets for an imminent start of the policy-easing cycle.
- Market participants have fully priced in a 25 basis points (bps) interest rate cut in September and expect the US central bank to lower borrowing costs again during the November and December monetary policy meetings.
- Apart from this, the US political uncertainty should act as a tailwind for the XAU/USD ahead of the key US macro data – the Advance Q2 GDP print on Thursday and the Personal Consumption Expenditures (PCE) Price Index.
Technical Analysis: Gold price might struggle to move back above the $2,400 round-figure mark
From a technical perspective, the intraday breakdown below the 100-period Simple Moving Average (SMA) on the 4-hour chart, the 50% retracement level of the June-July rally and the $2,385 support could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. That said, it will still be prudent to wait for some follow-through selling below the 61.8% Fibo. level, around the $2,370 area, before positioning for deeper losses. The XAU/USD might then weaken further below the 50-day SMA, around the $2,361 region, and test the next relevant support near the $2,35-$2,350 region.
On the flip side, any attempted recovery might now confront some resistance ahead of the $2,400 round-figure mark. A sustained strength beyond the said handle has the potential to lift the Gold price back towards the $2,412 horizontal resistance en route to the $2,423-2,425 region. This is followed by the weekly top, around the $2,432 area touched on Wednesday, above which a fresh bout of a short-covering should pave the way for a move towards the $2,469-2,470 intermediate resistance. The momentum could extend further towards the all-time peak, around the $2,484 area touched last week.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.52% | 0.32% | 0.80% | 2.27% | -3.06% | 1.81% | -0.61% | |
| EUR | -0.55% | -0.22% | 0.27% | 1.75% | -3.62% | 1.30% | -1.16% | |
| GBP | -0.32% | 0.20% | 0.48% | 1.95% | -3.41% | 1.50% | -0.95% | |
| CAD | -0.81% | -0.27% | -0.48% | 1.48% | -3.90% | 1.03% | -1.44% | |
| AUD | -2.33% | -1.78% | -1.99% | -1.49% | -5.46% | -0.44% | -2.95% | |
| JPY | 2.97% | 3.51% | 3.28% | 3.76% | 5.19% | 4.74% | 2.37% | |
| NZD | -1.84% | -1.31% | -1.51% | -1.03% | 0.46% | -4.96% | -2.48% | |
| CHF | 0.62% | 1.17% | 0.96% | 1.44% | 2.90% | -2.44% | 2.45% |
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).
Interest rates FAQs
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.
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.
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.
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.
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