Gold price falls back as Greenback swallows steroids amid US economic resilience.
US Q2 GDP, demand for Durable Goods in June remained robust due to higher consumer spending.
US recession fears fade significantly amid upbeat labor market conditions.
Gold price (XAU/USD) retreated after a less-confident recovery in Friday’s European session as the Greenback footing firms further amid resilience in the United States economy. The precious metal faces the burden of a stellar performance by the US economy in the second quarter, robust demand for durable products, and already tight labor market conditions. The further downside in the Gold price cannot be ruled out as fears of further policy-tightening by the Federal Reserve (Fed) are renewed.
United States’ economic resilience due to surprisingly higher Gross Domestic Product (GDP) data has defended against fears of recession. Also, Fed Chair Jerome Powell in his commentary on Wednesday said Fed officials are not anticipating a recession in the face of a tight labor market. More action will be witnessed in the US Dollar amid the release of the Fed’s preferred inflation gauge and the Employment Cost Index data.
Daily Digest Market Movers: Gold price senses pressure as Greenback climbs further
Gold price rebounds to near $1,950.00, downside seems favored as upbeat United States economic data propels the need for one more interest rate hike from the Federal Reserve.
The performance of the US economy in the second quarter was surprisingly more upbeat than expected by investors.
US GDP grew at a pace of 2.4% in the April-June quarter, much better than estimates of 1.8% delivered by Reuters. In the January-March quarter, GDP expanded by 2.0%. The higher pace of GDP figures has reduced fears of a recession in the US economy.
The US Durable Goods Orders for June expanded at a phenomenal pace of 4.7% against expectations of 1.0% and May’s reading of 1.8%.
Robust demand for durable goods indicates upbeat momentum in consumer spending. This could make the core Consumer Price Index (CPI) more stubborn ahead.
Apart from the US GDP and factory orders, Initial Jobless Claims for the week ending July 21 remained below expectations. Individuals applying for jobless claims for the first time were 221K vs. the expected figure of 235K and prior reading of 228K.
In the face of a tight labor market and economic resilience, the Fed could raise interest rates at its September policy meeting.
Fed Chair Jerome Powell commented that September’s policy will be data-dependent.
The US Dollar Index climbs to near 102.00 due to robust economic data.
More action in the US Dollar is anticipated ahead of the Core Personal Consumption Expenditure (PCE) index for June and Employment Cost Index for the second quarter.
As per the preliminary forecasts, the Fed’s preferred gauge expanded by 0.2% in June, slower than May’s figure of 0.3%. On an annual basis, the economic data is seen declining to 4.2% against a prior release of 4.6%.
While the Labor Cost Index fell to 1.1% vs. the former release of 1.2%, investors should note that higher wages have been a major contributor to sticky US inflation. A decline in the index would raise hopes of easing inflationary pressures further.
For interest-rate guidance, Vanguard, an asset manager, expects the Fed to maintain a hawkish stance by either keeping interest rates elevated for longer than what the market is pricing or by tightening monetary conditions even further.
To safeguard US regional banks in a turbulent environment, US bank regulators released a proposal Thursday that would direct the nation’s largest banks to raise their capital, arguing a larger cushion is needed to ensure stability, Reuters reported.
Technical Analysis: Gold price skids below 20-and 50-day EMAs
Gold price faces pressure after a short-lived recovery move close to $1,956.00 as the US Dollar extends its upside. The precious metal shifts into bearish territory after delivering a breakdown of the Double Top chart pattern around $1,980.00, which foreshadows a bearish reversal. The yellow metal tests the region below the 20-day and 50-day Exponential Moving Averages (EMAs), which conveys that the short and medium-term trend is turning bearish.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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