Gold gains ground as traders await US GDP data

• The price of gold returns above $2,500 in the first Asian session on Thursday.
• The Fed’s interest rate hike has reduced expectations and ongoing conflicts in the Middle East are supporting the yellow metal.
• A firmer US dollar could limit gold’s upside.

The price of gold (XAU/USD) is recovering lost ground on Thursday after returning to weekly lows in the region below $2,500 per troy ounce. Expectations of interest rate cuts in the US could increase demand for gold as lower interest rates reduce the opportunity cost of holding gold without yield. In addition, the current political uncertainty in the US, geopolitical tensions in the Middle East and global economic concerns are contributing to the rise of the precious metal.

On the other hand, renewed demand for the US dollar (USD) could influence the USD gold price as it makes gold more expensive for most buyers. Investors will closely monitor the US preliminary gross domestic product for the second quarter (Q2) on Thursday for more clues about the size and pace of the Federal Reserve’s (Fed) interest rate cut. On Friday, the US Personal Consumer Expenditure (PCE) price index for July will take center stage.

Daily Digest Market Movers: Gold price remains strong amid rising rate cut bets

• Gold demand will continue to be driven by emerging markets, particularly China, India and Turkey, noted John Reade, Chief Market Strategist at the World Gold Council.
• “The US data failed to give gold any lift, so the temptation for traders to take profits after a long run has increased,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
• The US Gross Domestic Product (GDP) growth number for Q2 in the second estimate is expected to rise 2.8%.
• The personal consumption expenditures (PCE) price index is expected to show a 2.6 percent increase from a year ago in July, compared to 2.5 percent in June. Core PCE inflation is forecast to rise from 2.6% to 2.7% per year.
• Futures markets are fully priced in for a 25 basis point (bps) rate cut in September, while the possibility of a deeper rate cut is 36.5%, according to CME’s FedWatch tool. Traders see the Fed tapering 100 basis points this year.

Technical Analysis: Gold price offers a bullish long-term outlook

The price of gold is trading in positive territory that day. The precious metal remains stuck below the upper limit of the five-month-old ascending channel and the all-time high. However, the big picture is bullish, with price well above the 100-day exponential moving average (EMA) on the daily time frame. The bullish momentum is confirmed by the 14-day Relative Strength Index (RSI) positions above the median line near 61.00, indicating that there is potential room for further upside.

The confluence of the all-time high and the upper limit of the trend channel in the $2,530-$2,535 area acts as the key upside barrier for the yellow metal. Extended gains could lead to a rise to the psychological $2,600 threshold.

The immediate support level for XAU/USD is located at the round figure of $2,500. A decisive break below this level could lead to a significant selloff towards $2,432, the August 15 low. The next level of contention is seen at $2,367, the 100-day EMA.