- Gold price attracts some dip-buyers on Tuesday, though the uptick lacks bullish conviction.
- Fed rate cut bets, US fiscal concerns, and geopolitical risks lend support to the commodity.
- The emergence of some USD buying and trade optimism cap gains for the XAU/USD pair.
Gold price (XAU/USD) touches a fresh daily high during the early part of the European session and looks to build on a modest intraday bounce from the vicinity of the $3,300 round figure. As investors keenly await details from the ongoing US-China trade talks in London, the commodity attracts some safe-haven flows amid the cautious market mood. Apart from this, bets that the Federal Reserve (Fed) will cut interest rates further in 2025 turn out to be another factor lending support to the non-yielding yellow metal.
However, traders scaled back their bets for more aggressive policy easing by the Fed following the release of the upbeat US Nonfarm Payrolls (NFP) report on Friday. This helps revive demand for the US Dollar (USD) and lifts it to over a one-week high in the last hour, keeping a lid on any further gains for the Gold price. Traders might also opt to wait for the crucial US inflation figures this week before positioning for an extension of the overnight bounce from a one-week trough or placing aggressive directional bets.
Daily Digest Market Movers: Gold price benefits from safe-haven flows; stronger USD caps the upside
- Chinese and US officials extend the new round of trade talks in London to a second day on Tuesday, fueling hopes for a deal between the world’s two largest economies. This remains supportive of a generally positive risk tone and prompts fresh selling around the safe-haven Gold price during the Asian session on Tuesday.
- A stronger-than-expected US Nonfarm Payrolls (NFP) report released on Friday dampened hopes for imminent interest rate cuts by the Federal Reserve this year. This assists the US Dollar to regain positive traction and turns out to be another factor that contributes to driving flows away from the non-yielding yellow metal.
- However, the CME Group’s FedWatch Tool indicates that traders are still pricing in a nearly 60% chance that the US central bank will cut interest rates at its September monetary policy meeting. This, along with concerns about the US government’s financial health, fails to assist the USD to capitalize on its intraday move higher.
- On the geopolitical front, Russia launched a massive airstrike on Ukraine and fired nearly 500 drones and missiles. This marks a further escalation of the conflict in the three-year-old war and might hold back the XAU/USD bears from placing aggressive bets in the absence of any relevant market-moving economic data from the US.
- The US Consumer Price Index (CPI) and the Producer Price Index (PPI) are due for release on Wednesday and Thursday, respectively. The crucial inflation figures should provide some cues about the Fed’s future rate-cut path, which, in turn, will drive the USD demand and provide some meaningful impetus to the commodity.
Gold price needs to surpass 200-hour SMA, around $3,333-3,334 to back the case for further gains
From a technical perspective, the overnight failure to find acceptance above the 200-hour Simple Moving Average (SMA) and the subsequent slide favors the XAU/USD bears. Moreover, oscillators on hourly charts have been gaining negative traction and back the case for further intraday losses. Some follow-through selling below the $3,294-3,293 area, or the overnight swing low, will reaffirm the bearish outlook and make the Gold price vulnerable to accelerate the fall towards the $3,246-3,245 area (May 29 swing low) en route to the $3,200 neighborhood.
On the flip side, the 100-hour SMA, currently pegged near the $3,333-3.334 area might continue to act as an immediate hurdle. A sustained strength beyond could trigger an intraday short-covering move and lift the Gold price to the $3.352-3,353 hurdle. The momentum could extend further towards the $3,377-3,378 resistance, which if cleared should allow the XAU/USD to make a fresh attempt to conquer the $3,400 round figure.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
