Gold price remains on edge on firm prospects of Trump’s victory
- Gold price edges higher but remains uncertain amid expectations for Trump winning the US presidential elections.
- US President Biden withdraws the re-election bid and nominates Kamala Harris to lead the Democrats.
- The US Dollar edges lower ahead of US data-packed week
Gold price (XAU/USD) exhibits uncertainty near key support of $2,400 in Monday’s European session. The precious metal remains on tenterhooks amid growing speculation that Donald Trump-led-Republicans will win the United States (US) presidential elections in November.
Market experts see Trump’s victory as favorable for economic growth as he has promised cuts in corporate taxes and interest rates. This has fuelled upside risks to consumer inflation expectations. Experts also expect further trade restrictions if Republicans enter the White House. The prospects of Donald Trump winning elections grew after an assassination attack on him and US President Joe Biden’s withdrawal from the re-election bid, which has paved the way for Vice President Kamala Harris as the nominee of Democrats.
Rising odds of Trump’s victory have improved the US Dollar’s appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slightly retraces to 104.20 on Monday after a strong recovery from a four-month low of 103.65.
10-year US Treasury yields decline to 4.22%. Lower yields on interest-bearing assets reduce the opportunity cost of investing in non-yielding assets, such as Gold.
Daily digest market movers: Gold price steadies ahead of busy US week
- Gold price finds temporary support near $2,400 after declining consecutively for three trading days, with the focus on US data-packed week. The economic data will provide fresh cues about when the Federal Reserve (Fed) will start reducing interest rates this year.
- This week, investors will focus on the preliminary S&P Global Purchasing Managers Index (PMI) for July, Q2 Gross Domestic Product (GDP), and the Durable Goods Orders and Personal Consumption Expenditure Price Index (PCE) for June. According to the estimates, advanced PMI expanded at a slower pace than the previous month. Meanwhile, the GDP is expected to expand at a strong pace of 2.0% on an annualized basis from the former release of 1.4%.
- Investors will keenly focus on the core PCE inflation data, which is the Fed’s preferred inflation gauge. On a monthly basis, the inflation measure is estimated to have grown at a faster pace of 0.2% from the former reading of 0.1%.
- Currently, financial markets expect the Fed to begin lowering its key borrowing rates in September and deliver two rate cuts this year against one projected by policymakers in the latest dot plot.
- Recently, the confidence of Fed officials that inflation has returned on its path to 2% has increased. June’s inflation readings showed that price pressures grew at a slower-than-expected pace. Also, monthly headline inflation deflated for the first time in more than four years.
Technical Analysis: Gold hovers around $2,400
Gold price trades in a tight range near $2,400 on Monday. The precious metal declines to near the 20-day Exponential Moving Average (EMA), which trades around $2,390, and suggests that the near-term outlook has not weakened yet technically.
Advancing trendline plotted from the February 14 low at $1,984.30 will be a major support for Gold bulls.
The 14-day Relative Strength Index (RSI) drops inside the 40.00-60.00 range, suggesting that the upside momentum has stalled. However, the upside bias remains intact.
A fresh upside would appear if the Gold price breaks above the all-time-high around $2,480.
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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