Gold price attracts some buyers on softer USD ahead of US CPI

  • Gold price attracts some buyers for the third straight day, albeit lacking bullish conviction.
  • Fed rate cut bets keep the USD bulls on the defensive and continue to lend some support.
  • The risk-on mood caps the upside as traders keenly await the release of the US CPI report.

Gold price (XAU/USD) gains some positive traction for the third successive day on Thursday and climbs back above the $2,380 level during the early European session, though remains below the weekly top. Expectations that the US central bank will begin its rate-cutting cycle in September, bolstered by Federal Reserve (Fed) Chair Jerome Powell's comments, continue to exert downward pressure on the USD. This, along with sustained central bank buying, macroeconomic uncertainties, and geopolitical risks, lend some support to the XAU/USD. 

That said, the prevalent risk-on environment might keep a lid on any further move up for the safe-haven Gold price as traders keenly await the release of the latest consumer inflation figures from the United States (US). The key US CPI report will be looked upon for more cues about the Fed's rate-cut path, which should drive the US Dollar (USD) demand and provide some meaningful impetus to the commodity. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD remains to the upside. 

Daily Digest Market Movers: Gold price is underpinned by Fed rate cut hopes-inspired modest USD weakness

  • Firming acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September and lower borrowing costs again in December continues to undermine the US Dollar, lending some support to the Gold price. 
  • The bets were lifted by Fed Chair Jerome Powell's comments, saying that the US remained on a path back to stable prices and that the central bank will consider neutral rates later in 2024 once inflation makes more progress.
  • Powell acknowledged some cooling in the US economy, though he said that he continues to see a soft landing, boosting investors' appetite for riskier assets, which, in turn, is seen capping the upside for the safe-haven XAU/USD.
  • Powell also reiterated that the Fed remained committed to its 2% inflation target, making the release of the latest US consumer inflation more relevant and holding back traders from placing fresh bullish bets around the metal.
  • The headline CPI is estimated to have risen by 0.1% in June and the yearly rate decelerated from 3.3% to 3.1%, while the Core CPI (excluding Food and Energy prices) is expected to remain sticky and come in at a 3.4% YoY rate.
  • The crucial inflation data will set the stage for the Fed's rate-cut path, which, in turn, should influence the USD price dynamics and help in determining the next leg of a directional move for the non-yielding yellow metal.

Technical Analysis: Gold price seems poised to appreciate beyond $2,400 mark and retest the all-time peak

From a technical perspective, last week's sustained breakout through the 50-day Simple Moving Average (SMA) and a subsequent move beyond the $2,365 supply zone was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the Gold price is to the upside. This, in turn, supports prospects for some follow-through strength towards reclaiming the $2,400 mark with some intermediate hurdle near the overnight swing high, around the $2,386-2,387 zone, and the $2,393 area, over a one-month top touched last week.

On the flip side, any corrective slide is likely to find some support near the $2,360-2,358 region ahead of the 50-day SMA, currently pegged near the $2,345 area. A convincing break below the latter has the potential to drag the Gold price to the $2,319-2,318 support en route to the $2,300 mark and the $2,285 horizontal zone. The latter now coincides with the 100-day SMA, which, if broken, decisively might shift the near-term bias in favor of bearish traders. The XAU/USD might then slide to the $2,258 intermediate support before dropping to the $2,225-2,220 area and the $2,200 round-figure mark.

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 weakest against the Pound Sterling.

USD   -0.41% -0.88% -0.09% -0.70% 0.03% 0.17% -0.18%
EUR 0.42%   -0.46% 0.34% -0.29% 0.45% 0.59% 0.23%
GBP 0.86% 0.44%   0.78% 0.15% 0.89% 1.04% 0.68%
CAD 0.09% -0.30% -0.75%   -0.59% 0.12% 0.26% -0.09%
AUD 0.70% 0.28% -0.14% 0.62%   0.77% 0.88% 0.52%
JPY -0.03% -0.42% -0.94% -0.13% -0.72%   0.16% -0.22%
NZD -0.17% -0.60% -1.06% -0.27% -0.88% -0.14%   -0.36%
CHF 0.13% -0.24% -0.69% 0.09% -0.52% 0.21% 0.35%  

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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