- Gold price climbed to a fresh all-time peak on Thursday amid dovish Fed expectations.
- The USD languished near the YTD low and shrugged off Thursday’s upbeat US data.
- The upbeat market mood caps the XAU/USD ahead of the key US PCE Price Index.
Gold price (XAU/USD) extended its record-breaking run for the fifth straight day on Thursday amid the emergence of fresh US Dollar (USD) selling. Despite the fact that several Federal Reserve (Fed) officials this week tried to push back against bets for a more aggressive policy easing, the markets are still pricing in a greater chance of another oversized rate cut in November. This overshadowed the better-than-expected US macro data and weighed heavily on the buck, benefiting the non-yielding yellow metal.
Apart from this, persistent geopolitical tensions stemming from the ongoing conflicts in the Middle East continue to drive haven flows and turn out to be another factor acting as a tailwind for the Gold price. That said, the prevalent risk-on mood across the global equity markets – bolstered by China’s stimulus measures – caps any further gains for the XAU/USD. Investors also seem reluctant and prefer to wait on the sidelines ahead of Friday’s release of the US Personal Consumption Expenditure (PCE) Price Index.
Daily Digest Market Movers: Gold price bulls turn cautious amid risk-on mood, ahead of US PCE Price Index
- Federal Reserve Governor Michelle Bowman again defended her decision to vote against the oversized rate cut in September and said that the upside risk to inflation is still prominent.
- Earlier this week, Atlanta Fed President Raphael Bostic warned that the central bank needn’t go on a mad dash to lower rates, while other Fed officials left the door open for large rate cuts.
- Fed Governor Lisa Cook said on Thursday that she endorsed the 50 basis points rate cut last week as upside risks to inflation have diminished and increasing downside risks to employment.
- According to the CME Group’s FedWatch Tool, market participants see over a 50% chance that the Fed will lower borrowing costs by 50 basis points at the November policy meeting.
- Data released by the Bureau of Economic Analysis (BEA) on Thursday showed that the US economy grew at a 3% annual rate in the second quarter, matching the original estimates.
- Separately, the US Census Bureau reported that new orders for manufactured durable goods stagnated in August, while orders excluding transportation items rose 0.5% last month.
- Adding to this, the US Labor Department said that initial claims for state unemployment benefits dropped to 218,000 for the week ended September 21 – marking the lowest since mid-May.
- The data did provide some intraday respite to the US Dollar bulls, though the initial market reaction turned out to be short-lived in the wake of dovish Fed expectations.
- Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East and a broader regional conflict lifts the safe-haven Gold price to a fresh record high.
- Meanwhile, interest rate cut is expected to boost global economic activity, which, along with stimulus measures from China, fuels the risk-on rally and caps the XAU/USD.
- The People’s Bank of China (PBOC) cut the seven-day repo rate to 1.5% from 1.7% and lowered the amount of the Reserve Requirement Ratio (RRR) by 50 bps on Friday.
- Friday’s release of the US Personal Consumption Expenditure Price Index might provide some impetus to the metal, which remains on track to register a third straight week of gains.
Technical Outlook: Gold price consolidates before the next leg up, dips to $2,625 might be bought into
From a technical perspective, the Relative Strength Index (RSI) on the daily chart has been flashing overbought conditions and holding back bulls from placing fresh bets around the XAU/USD. That said, the recent breakout through a short-term ascending trend channel suggests that the path of least resistance for the Gold price is to the upside. Bulls, however, need to wait for some near-term consolidation or a modest pullback before positioning for an extension of the recent well-established uptrend.
Meanwhile, any meaningful dip could be seen as a buying opportunity near the channel resistance breakpoint, around the $2,625 region. This, in turn, should help limit the downside for the commodity near the $2,600 mark. The latter should act as a key pivotal point, which if broken decisively should pave the way for some meaningful downside in the near term.
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.