Gold price slumps to two-week low despite softer USD, risk-off mood
- 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 ahead of the US data.
Gold price (XAU/USD) extends the previous day's sharp retracement slide from the weekly peak and remains under heavy selling pressure for the second straight day on Thursday. The downfall, though lacking any obvious fundamental catalyst, drags the commodity to a two-week low, around the $2,370 level during the Asian session. That said, a combination of factors should help limit any further losses for the precious metal.
The risk-off impulse – as depicted by the overnight slump in the US equities and a generally weaker tone across the Asian markets – could lend some support to the safe-haven Gold price. Furthermore, growing acceptance that the Federal Reserve (Fed) will start cutting interest rates in September keeps the US Dollar bulls on the defensive below a two-week high touched on Wednesday and should act as a tailwind for the commodity.
This, in turn, warrants some caution before placing aggressive bearish bets around the Gold price as traders keenly await the release of the Advance US Q2 GDP print, due later today for a fresh impetus. The focus, however, will remain glued to the US Personal Consumption Expenditures (PCE) Price Index on Friday, which will play a key role in influencing the Fed's policy path and provide a fresh directional impetus to the non-yielding yellow metal.
Daily Digest Market Movers: Gold price bulls remain on the sidelines despite a combination of supporting factors
- 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 turns vulnerable below the $2,385 support zone, weakness below the 61.8% Fibo. awaited
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.
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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