Gold price regains positive traction and climbs back closer to a two-week top.
September Fed rate cut bets undermine the USD and lend support to the metal.
The risk-on mood might cap gains as traders gear up for the key US jobs report.
Gold price (XAU/USD) attracts fresh buyers during the Asian session on Friday following the previous day’s range-bound price action and climbs back closer highest level since June 21 touched earlier this week. The US Dollar (USD) remains depressed for the fourth straight day and languishes near a multi-week low amid firming expectations that the Federal Reserve (Fed) will start its rate-cutting cycle in September, bolstered by the incoming softer US macro data. This, in turn, is seen as a key factor acting as a tailwind for the commodity.
Apart from this, persistent geopolitical tensions, along with political uncertainty in the US and Europe, further benefit the safe-haven Gold price. That said, the prevalent risk-on environment – as depicted by the recent bullish run across the global equity markets – might keep a lid on any runaway rally for the XAU/USD. Traders might also refrain from placing aggressive bets and prefer to wait for the release of the US Nonfarm Payrolls (NFP) report, which will influence the USD price dynamics and provide a fresh impetus to the metal.
Daily Digest Market Movers: Gold price draws support from rising September Fed rate cut bets
Expectations for an imminent start of the Federal Reserve’s rate-cutting cycle in September weigh on the US Dollar for the fourth straight day on Friday and continue to lend support to the non-yielding Gold price.
The market bets were lifted by this week’s softer US macroeconomic releases, which pointed to signs of weakness in the labor market and a loss of momentum in the economy at the end of the second quarter.
That said, hawkish signals from a slew of influential Fed officials, along with the minutes of the June FOMC policy meeting, suggest that policymakers were still not confident about bringing down lending costs.
Furthermore, the underlying bullish sentiment across the global equity markets holds back traders from placing fresh bullish bets around the safe-haven precious metal ahead of the closely-watched US employment data.
The popularly known Nonfarm Payrolls report is due for release later during the North American session and is expected to show that the US economy added 190K jobs in June as compared to the 272K previous.
Meanwhile, the unemployment rate is anticipated to hold steady at 4%, while Average Hourly Earnings growth could see a modest dip, rising by the 3.9% yearly rate as compared to the 4.1% increase recorded in May.
The crucial data will play a key role in influencing market expectations about the Fed’s future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the XAU/USD.
Technical Analysis: Gold price bulls have the upper hand near two-week top, await a move beyond $2,365
From a technical perspective, Wednesday’s sustained breakout through the 50-day Simple Moving Average (SMA) was seen as a fresh trigger for bullish traders. Adding to this, oscillators on the daily chart have again started gaining positive traction and suggest that the path of least resistance for the Gold price is to the upside. Some follow-through buying beyond the $2,365 area will reaffirm the constructive outlook and allow the XAU/USD to reclaim the $2,400 mark. The momentum could extend further towards challenging the all-time peak, around the $2,450 zone touched in May.
On the flip side, weakness back towards the 50-day SMA resistance breakpoint, around the $2,339-2,338 region, could be seen as a buying opportunity. This is followed by support near the $2,319-2,318 area, which if broken decisively could make the Gold price vulnerable to weaken further below the $2,300 mark and test the $2,285 horizontal zone. Failure to defend the said support levels might expose the 100-day SMA, currently near the $2,258 area, and the $2,225-2,220 support before the XAU/USD eventually drops to the $2,200 round-figure mark.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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