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Gold price consolidates in a range amid mixed cues, looks tilted in favor of bulls

  • The price of gold is struggling to capitalize on the previous day’s strong gain of nearly 2%.
  • Upbeat US labor market report supports USD and acts as a headwind.
  • Risk momentum further limits gains, although Fed rate cut bets provide support.

The price of gold (XAU/USD) rose nearly 2% on Thursday and snapped a four-day losing streak on growing bets for more interest rate cuts by the Federal Reserve (Fed) in September. Apart from this, fears of a wider conflict in the Middle East proved to be another factor driving flows to the safe-haven precious metal. Meanwhile, the strong positive move on the day appears unaffected by some US dollar (USD) buying, which tends to undercut demand for the commodity.

In fact, the USD Index (DXY), which tracks the greenback against a basket of currencies, hit a new weekly high in reaction to upbeat data showing jobless claims fell more than expected last week. The solid labor market report eased fears of an impending recession, pushing U.S. Treasury yields higher and providing some support to the dollar. Adding to these, risk-on momentum is helping to keep a lid on the safe-haven gold price during Friday’s Asian session.

Daily Digest Market Movers: Gold price lacks further buying amid upbeat market sentiment

  • Markets fully priced in a 25 basis point rate cut by the Federal Reserve in September and speculated on the possibility of a 50 basis point rate cut, providing support for gold prices.
  • Additionally, the assassination of Hamas chief Ismail Haniyeh in Tehran last week raised the risk of retaliatory attacks by Iran on Israel and further benefited safe-haven XAU/USD.
  • US data released on Thursday showed there were 233,000 initial jobless claims in the week ended August 3, compared with expectations for a print of 240,000 and 249,000 the previous week.
  • The upbeat reading eased concerns about an economic slowdown in the world’s largest economy, sparking a higher move in U.S. Treasury bond yields and lifting the U.S. dollar to a weekly high.
  • Meanwhile, easing fears of a possible US recession boosted investor confidence and led to a strong recovery in US equity markets, which in turn capped gains for the precious metal.
  • Meanwhile, traders reacted little to better-than-expected Chinese inflation figures, which showed headline CPI rose 0.5% on the year in July after reporting a 0.2% rise in June.
  • However, this was offset by the fact that China’s PPI extended a long period of declines seen since November 2022 and fell at a rate of 0.8% year-on-year in July, the same pace as in June.

Technical Analysis: Gold price looks poised to climb further towards the $2,448-$2,450 resistance

From a technical perspective, the recent pullback from the 50-day Simple Moving Average (SMA) support and the subsequent rise favors bullish traders. Furthermore, the oscillators on the daily chart have once again started to gain positive traction and suggest that the path of least resistance for gold prices is up. Therefore, some tracking strength towards the next relevant hurdle near the $2,448-2,450 region seems a distinct possibility. Momentum could further extend to challenging the all-time high near the $2,483-$2,484 area reached in July. The latter is closely followed by the psychological $2,500 mark, which, if decisively broken, will set the stage for another short-term appreciation move.

On the other hand, the horizontal resistance threshold of $2,412-2,410 now appears to protect the immediate downside ahead of the $2,400 round-digit mark. Any further decline could continue to attract buyers and remain cushioned near the 50-day SMA support, currently pinned near the $2,372-$2,371 region. This should act as a key pivot point, below which the gold price could look to retest last week’s swing around the $2,353-$2,352 area. Failure to defend the said support levels could change the trend in favor of bear traders and expose the 100-day SMA support around the $2,342 area.

Gold FAQ

Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Today, apart from its luster and use for jewellery, the precious metal is widely seen as a safe haven, meaning it is considered a good investment during troubled times. Gold is also widely seen as a hedge against inflation and against depreciating currencies because it is not based on any particular issuer or government.

Central banks are the biggest holders of gold. In order to support their currencies in troubled times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and currency. Large gold reserves can be a reliable source of a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly 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, allowing investors and central banks to diversify their assets in troubled times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends 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 cause the price of gold to rise due to its safe haven status. As a non-yielding asset, gold tends to rise with lower interest rates, while the higher cost of money usually weighs on the yellow metal. However, most of the moves depend on how the US dollar (USD) behaves, as the asset is valued in dollars (XAU/USD). A strong dollar tends to keep gold prices in check, while a weaker dollar is likely to push gold prices higher.

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