Gold sticks to losses for the second day amid firmer USD, ahead of Fed's Powell

Gold drifts lower for the second straight day as reduced Fed rate cut bets underpin the USD.
The cautious market mood does little to lend any support to the safe-haven precious metal.
Traders keenly await Fed Chair Powell’s speech for rate-cut cues and a meaningful impetus.

Haresh Menghani FXStreet

Gold (XAU/USD) retains its negative bias for the second successive day on Friday and remains well within striking distance of the 100-day Simple Moving Average (SMA) support tested earlier this week. The US Dollar (USD) buying remains unabated in the wake of diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed), which, in turn, is seen as a key factor undermining the non-yielding yellow metal.

The USD bulls, meanwhile, seem unaffected by the growing acceptance that the US central bank would resume its rate-cutting cycle in September. Moreover, the cautious mood ahead of Fed Chair Jerome Powell's highly anticipated speech at the Jackson Hole Symposium does little to offer any support to the safe-haven Gold. This, in turn, favors the XAU/USD bears and backs the case for a further near-term depreciating move.

Daily Digest Market Movers: Gold price seems vulnerable as traders await Powell's speech

Traders pared their bets for a more aggressive policy easing by the US Federal Reserve following last week's release of the hot US Producer Price Index (PPI), which pointed to signs of a gain of momentum in inflationary pressures. Moreover, Kansas City Fed president Jeffrey Schmid said on Thursday, described the central bank's current monetary policy stance as "modestly restrictive" and sounded cautious about a September rate cut.
Separately, Cleveland Fed President Beth Hammack said that it is important to maintain a modestly restrictive policy to lower inflation. The biggest concern is that inflation is too high and has been trending in the wrong direction, Hammack added further. This assists the US Dollar in preserving its weekly gains to the highest level since August 6 and exerts some downward pressure on the non-yielding Gold for the second straight day on Friday.
Meanwhile, Chicago Fed President Austan Goolsbee said in a Bloomberg TV interview that the recent inflation data gives him some pause when it comes to cutting interest rates. Goolsbee, however, indicated that the September policy meeting is live for potential monetary policy action. Furthermore, Boston President Susan Collins signaled openness to a rate cut as soon as next month due to risks of weaker employment and higher tariffs.
According to the CME Group's FedWatch Tool, traders are pricing in a 75% chance that the Fed will lower borrowing costs in September and expect at least two 25 basis points rate cuts by the year-end. The bets were reaffirmed by Thursday's data, which showed that Jobless Claims rose by the most in about three months, and people collecting unemployment relief in the prior week climbed to the highest level in nearly four years.
Hence, investors will closely scrutinize Fed Chair Jerome Powell's speech at the Jackson Hole Symposium for fresh cues about the rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the non-yielding yellow metal.

Gold could depreciate further and retest the 100-day SMA pivotal support

The overnight swing low, around the $3,325 region, now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near the $3,316-3,315 zone. Some follow-through selling below the $3,311 area, or a three-week low touched on Wednesday, will be seen as a key trigger for the XAU/USD bears. The subsequent fall could drag the Gold price below the $3,300 mark, towards the $3,270-3,265 strong horizontal support amid slightly negative oscillators on the daily chart. The latter represents the lower boundary of a three-month-old trading range, which, if broken, will suggest that the commodity has topped out and pave the way for a further depreciating move.

On the flip side, the $3,348-3,350 region now seems to have emerged as an immediate strong barrier, above which a fresh bout of a short-covering move could lift the Gold price to the $3,375 resistance zone. The momentum could extend further towards the $3,400 mark before the XAU/USD pair aims to challenge the $3,434-3,435 heavy supply zone, marking the top boundary of a three-month-old trading range.

Economic Indicator

Fed's Chair Powell speech

Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. On November 2, 2017, President Donald Trump nominated Powell to serve as the next Chairman of the Federal Reserve. Powell assumed office as Chair on February 5, 2018.

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