Gold price struggles to capitalize on the previous day’s recovery from over a one-week trough as the USD climbs to a nearly two-week high, acting as a headwind for the metal. A softer risk tone and dovish Fed expectations should limit the downside ahead of global PMIs. Vice President Kamala Harris secured support to become the Democratic nominee, prompting some unwinding of the ‘Trump trade’ and dragging US bond yields lower. Investors expect the US central bank to start lowering borrowing costs at its September meeting and have been pricing in the possibility of two more rate cuts by the end of the year, offering support to the non-yielding yellow metal. The focus remains on the release of the US Personal Consumption Expenditures (PCE) Price Index data on Friday and the global flash PMIs due later today.
On Tuesday, a modest slide in US Treasury bond yields, along with a softer risk tone, assisted the Gold price in gaining positive traction and moving away from a one-week low. The National Association of Realtors reported that US existing home sales fell 5.4% in June, and the Federal Reserve Bank of Richmond’s survey showed manufacturing activity worsening in July. The slight deterioration in global risk sentiment, as depicted by a weaker tone across the global equity markets, also drove some haven flows towards the precious metal. The Gold price needs to surpass the $2,417-2,418 hurdle to attract meaningful buyers, with technical analysis showing potential resistance levels and areas of support for the precious metal.
Central banks are the biggest holders of Gold, using it as a safe-haven asset to support their currencies in turbulent times and improve the perceived strength of the economy. In 2022, central banks added 1,136 tonnes of Gold to their reserves, the highest yearly purchase since records began. Gold has an inverse correlation with the US Dollar and US Treasuries, and is seen as a hedge against inflation and depreciating currencies, making it an attractive investment during turbulent times. Geopolitical instability and fears of a deep recession can quickly escalate Gold prices due to its safe-haven status, while the asset’s movements are heavily influenced by the behavior of the US Dollar.
Gold price registered modest gains on Tuesday after snapping a four-day losing streak to a one-and-half-week low touched the previous day. Factors supporting the positive move included a slight deterioration in global risk sentiment, weaker tone across global equity markets, and a slide in US Treasury bond yields after a weak housing market report and Vice President Kamala Harris secured support to become the likely Democratic nominee. However, the US Dollar recovery from a nearly four-month trough acted as a headwind for the Gold price on Wednesday. Traders are waiting for more cues about the Fed’s policy path before positioning for the next directional move for the non-yielding yellow metal.
Investors are largely expecting the US central bank to start lowering borrowing costs at its September meeting, with the possibility of two more rate cuts by the end of the year. This expectation offers some support to the Gold price, though some follow-through US Dollar buying keeps a lid on further appreciation. The US Gross Domestic Product (GDP) report for the second quarter will be released on Thursday, followed by the crucial Personal Consumption Expenditures (PCE) Price Index data for June on Friday. These releases will provide fresh insight into the Fed’s path for interest rates and influence the USD price dynamics, shaping the next directional move for XAU/USD. Traders are looking at Wednesday’s release of flash PMI data for cues about the health of the global economy and short-term opportunities around the precious metal.
