Gold price oscillates in a range below one-week top; bullish potential seems intact
- Gold price consolidates its weekly gains registered over the past two days amid mixed cues.
- A modest USD uptick and a positive risk tone seem to act as a headwind for the commodity.
- Fed rate cut bets should cap the USD and support the XAU/USD pair amid trade uncertainties.
Gold price (XAU/USD) struggles to capitalize on its gains registered over the past two days and oscillates in a narrow range during the Asian session on Wednesday, just below a one-week high touched the previous day. The US Dollar (USD) ticks higher and looks to build on the overnight bounce from its lowest level since February 2022, which, in turn, is seen weighing on the precious metal. Furthermore, the underlying bullish sentiment turns out to be another factor undermining the safe-haven commodity.
However, firming expectations that the US Federal Reserve (Fed) would resume its rate-cutting cycle in the near future, along with concerns about the worsening US fiscal condition, could cap any meaningful USD appreciation. Moreover, trade-related uncertainties contribute to limiting the downside for the Gold price. Traders might also opt to wait for the release of the US jobs report on Thursday for cues about the Fed's rate-cut path, which will drive the USD and the non-yielding yellow metal.
Daily Digest Market Movers: Gold price draws support from Fed rate cut bets, trade jitters
- The US Dollar stages a modest bounce from over a three-and-a-half-year low touched on Tuesday and fails to assist the Gold price to build on a two-day-old recovery from a nearly one-month low touched earlier this week.
- Comments from Federal Reserve Governor Michelle Bowman and fellow Governor Christopher Waller suggested that the US central bank could consider cutting interest rates as early as the July monetary policy meeting.
- Meanwhile, Fed Chair Jerome Powell said on Tuesday that the US central bank would have eased monetary policy by now if not for the highly uncertain economic path created by US President Donald Trump’s tariff policies.
- When asked if July would be too soon for markets to expect a rate cut, Powell answered that it’s going to depend on the data. Nevertheless, traders are pricing in over a 20% chance that the Fed will cut rates at the July meeting.
- More significantly, there is a nearly 75% probability of a 25 basis point rate reduction by the Fed at the September monetary policy meeting. This caps any further USD recovery and supports the non-yielding yellow metal.
- On the economic data front, the Institute of Supply Management (ISM) reported on Tuesday that economic activity in the US manufacturing sector contracted for the fourth consecutive month, though at a slower pace in June.
- Separately, the Job Openings and Labor Turnover Survey (JOLTS) revealed that the number of job openings stood at 7.769 million on the last business day of May, up from 7.395 million in April and 7.3 million anticipated.
- Wednesday's US economic docket features the release of the ADP report on private-sector employment, which might influence the USD and the XAU/USD pair ahead of the official Nonfarm Payrolls (NFP) report on Friday.
- Trump threatened to impose higher tariffs on Japanese imports over the latter's alleged unwillingness to buy American-grown rice. This comes ahead of the July 9 deadline for Trump's reciprocal tariffs and fuels uncertainty.
Gold price needs to break through $3,355-3,358 hurdle to back the case for further gains
Bulls might now wait for a move beyond the overnight swing high, around the $3,358 region, before placing fresh bets around the Gold price. The subsequent move up should allow the commodity to reclaim the $3,400 round-figure mark. A sustained strength beyond the latter would negate any near-term negative outlook and shift the bias in favor of the XAU/USD bulls.
On the flip side, weakness below the $3,329-3,328 region (Asian session low) could find support near the $3,300 mark. This is followed by the $3,277-3,276 horizontal zone and the weekly trough, around the $3,246-3,245 region. A convincing break below the latter would make the Gold price vulnerable to accelerate the fall to the $3,210-$3,200 support en route to the $3,175 area.
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.