Gold price surged for back-to-back days on Wednesday amid growing speculation around the Federal Reserve (Fed) potentially cutting higher interest rates at the September meeting. As a result, US Treasury bond yields and the US Dollar faced downward pressure, serving as a positive catalyst for the precious metal. The XAU/USD pair traded at $2,372, recording an increase of over 0.30%.
The decline in US Treasury bond yields and a weaker US Dollar provided support for Gold, which is traditionally viewed as a safe-haven asset. The US 10-year benchmark note coupon dropped by one-and-a-half basis points to 4.288%, while the US Dollar Index (DXY) fell below the 105.00 mark, slipping by 0.06%.
Fed Chair Jerome Powell reiterated his remarks during his appearance at the US House of Representatives, emphasizing the progress made in inflation. However, Powell expressed uncertainty about whether lowering rates would help achieve the 2% inflation target.
Gold remained buoyed by consecutive months of inflows into Gold exchange-traded funds (EFTs) in June, driven by increased holdings by Europe and Asia-listed funds. Moving forward, market participants are focused on the release of US June inflation data, Initial Jobless Claims, and the University of Michigan Consumer Sentiment report, which will influence Gold’s direction in the days ahead.
Looking at market movers, Gold prices were supported by expectations for a decrease in the US Consumer Price Index (CPI) from 3.3% to 3.1% annually in June, while core inflation was projected to stay steady at 3.4% year-on-year. Additionally, Initial Jobless Claims were anticipated to rise, while July Consumer Sentiment was forecasted to improve. Amid these developments, investors are pricing in a 71% probability of a Fed rate cut in September, reflecting growing expectations in the market.
In terms of technical analysis, Gold prices consolidated around $2,370, following a bearish Harami candlestick pattern. Despite this, the precious metal remained in an uptrend. The Relative Strength Index (RSI) showed a bullish momentum, indicating a potential upward movement. The key resistance levels for XAU/USD stood at $2,392, $2,400, and $2,450, while support levels were identified at $2,350, $2,300, and $2,277.
Gold has a rich historical significance as a store of value and medium of exchange. Apart from its use in jewelry, Gold is widely considered a safe-haven asset and a hedge against inflation. Central banks are major holders of Gold, using it to support their currencies during turbulent times. Gold has an inverse correlation with the US Dollar and US Treasuries, making it an attractive asset during periods of currency depreciation.
The price of Gold can be influenced by various factors, including geopolitical instability, fears of a recession, and movements in the US Dollar. As a yield-less asset, Gold tends to rise when interest rates are low and fall when rates are high. Ultimately, Gold prices are closely tied to the performance of the US Dollar, as the asset is priced in dollars. A strong Dollar typically suppresses Gold prices, while a weaker Dollar tends to push them higher.
