Gold price rises on Fed rate cut hopes despite strong US data
- Gold prices climb despite upbeat US Q2 GDP revision and drop in unemployment claims.
- Despite rising US Treasury yields (10-year at 3.86%) and DXY up 0.33% to 101.38, Gold's upward trend continues.
- Focus shifts to upcoming core PCE data, expected to slightly increase, potentially impacting Fed decisions.
- CME FedWatch Tool shows 65.5% likelihood of a 25 bps rate cut in September, bolstering Gold prices.
Gold prices rose late in the North American session even though the US economy remains resilient after Gross Domestic Product (GDP) figures propelled the Greenback higher. Despite this, Gold prices continue to grind higher amid expectations of the Fed's first rate cut. The XAU/USD posted gains of 0.78% and exchanged hands at $2,523.
Market sentiment is positive, as traders remain laser-focused on data that could confirm the size of the Federal Reserve’s (Fed) first rate cut. In the meantime, the US Bureau of Economic Analysis revealed the country grew in Q2 2024 above the preliminary release, lifting the Personal Consumption Expenditures Price Index (PCE) Deflator with it.
At the same time, the US Department of Labor revealed that fewer than expected Americans applied for unemployment benefits, which is a relief for the Fed, which acknowledged in Powell’s speech that employment risks are tilted to the upside.
Despite that, the golden metal extended its gains above $2,520 even though the US 10-year Treasury note yield rose two basis points to 3.86%. Meanwhile, the US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, climbed 0.33% to 101.38.
Given the backdrop, traders should expect that the non-yielding metal would aim lower, but investors see a 65.5% chance of a 25-basis-point (bps) rate cut at the September meeting, according to the CME FedWatch Tool, which underpins the precious metal.
On Friday, the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures Price Index (PCE) is expected to tick a tenth higher, according to the consensus.
The December 2024 Chicago Board of Trade (CBOT) fed funds future rates contract hints that investors are eyeing 98 basis points of Fed easing this year, up from Monday’s 97.
Daily digest market movers: Gold price advances as traders brace for US Core PCE data
- If US economic data continues to be weak, the Gold price uptrend is likely to persist, fueling speculation about a larger rate cut by the Fed.
- The second estimate of US GDP for Q2 2024 showed a significant increase from 1.4% in Q1 to 3%, surpassing estimates of 2.8%. The Personal Consumption Price Expenditures (PCE) Deflator indicated that inflation dipped from 3.1% to 2.5% QoQ, slightly higher than the anticipated 2.3%.
- Initial Jobless Claims for the week ending August 24 decreased from 233K to 231K, slightly below the estimate of 232K.
- Next week, the US economic docket will feature the August Nonfarm Payrolls report, which could be crucial to assess the size of the Fed’s first rate cut at the September meeting.
Technical outlook: Gold price uptrend extends, traders eye $2,550
Gold price uptrend remains in place on Thursday. As price action pushes above $2,520, buyers remain hopeful that XAU/USD could climb past the all-time high (ATH) at 2,531. Momentum suggests buyers are in charge as the Relative Strength Index (RSI) portrays. Given that backdrop, Bullion’s path of least resistance is tilted to the upside.
If XAU/USD clears the ATH, the next resistance would be the $2,550 mark. A breach of the latter will expose $2,600.
Conversely, if XAU/USD slumps beneath $2,500, the first support would be the July 17 peak at $2,483. O; once cleared, the next support would be the $2,450 psychological mark, followed by the 50-day Simple Moving Average (SMA) at $2,414.
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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