Gold hits fresh weekly high, despite US Dollar recovery

Most recent article: Gold gains on rising Geopolitical threat levels

Gold price refreshes weekly high early Thursday amid September Fed rate-cut bets.
Geopolitical risks and political uncertainty in Europe also lend support to the XAU/USD.
Stabilizing US Dollar alongside the US bond yields rebound keep Gold price below the 50-day SMA. 

Gold price (XAU/USD) refreshes a one-week top in the early European morning on Thursday, looking to recapture the 50-day Simple Moving Average (SMA) pivotal resistance. The incoming US macro data pointed to signs of easing inflationary pressures and that the economy is slowing down, fueling speculations that the Federal Reserve (Fed) will cut interest rates twice this year. This turns out to be a key factor driving flows towards the non-yielding yellow metal. 

Adding to this, geopolitical tensions and renewed political uncertainty in Europe lend additional support to the safe-haven precious metal. Meanwhile, the Fed last week adopted a more hawkish stance, and policymakers continue to argue in favor of one rate cut in 2024. Moreover, a goodish bounce in the US Treasury bond yields helps revive the US Dollar (USD) demand. This could keep a lid on any further gains for the XAU/USD.

Daily Digest Market Movers: Gold price extends gains even as USD bounces

The uncertainty over the likely timing of when the Federal Reserve will start cutting interest rates keeps traders on the sidelines and leads to subdued range-bound price action around the Gold price. 
The Fed projected only one interest rate cut this year as compared to three projected in March, which acts as a tailwind for the US Treasury bond yields and caps the upside for the non-yielding yellow metal.
The US Retail Sales data released on Tuesday pointed to lackluster economic activity, which, along with weaker US consumer and producer prices, should allow the Fed to ease monetary policy soon.
The current market pricing indicates a greater chance of the first rate cut in September and the possibility of one more rate cut in November or December, offering some support to the XAU/USD.
Ukrainian drone strikes on Russian energy infrastructure and Israel’s warning that an all-out war with Iran-backed Hezbollah was coming soon point to escalating geopolitical risk in Europe and the Middle East. 
Adding to this, concerns that a new government in France could weaken fiscal discipline act as a tailwind for the safe-haven assets and should help limit any meaningful downfall for the commodity.
Investors now look forward to the Swiss National Bank (SNB) decision and the crucial Bank of England (BoE) policy meeting, which might infuse volatility and provide some impetus to the metal. 
Traders will further take cues from the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, Philly Fed Manufacturing Index, Building Permits and Housing Starts.

Technical Analysis: Gold price bulls await breakout through the 50-day SMA barrier before placing fresh bets

From a technical perspective, bulls might still wait for a sustained strength beyond the 50-day Simple Moving Average (SMA) support breakpoint-turned-resistance, currently pegged near the $2,344-2,345 region, before placing fresh bets. The subsequent move-up will suggest that the recent corrective decline has run its course and lifts the Gold price beyond the $2,360-2,362 zone, towards the $2,387-2,388 intermediate hurdle en route to the $2,400 mark. The momentum could extend further towards the all-time peak, around the $2,450 area touched in May.

On the flip side, the $2,320-2,318 region is likely to protect the immediate downside ahead of the $2,300 mark. Some follow-through selling below the $2,285 horizontal support will be seen as a fresh trigger for bearish traders and pave the way for the resumption of the recent pullback from the record high. The Gold price might then accelerate the fall towards the next relevant support near the $2,254-2,253 region before eventually dropping to the $2,225-2,220 support and the $2,200 round-figure mark.

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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