- Gold regains positive traction as the US Treasury’s buyback strategy keeps US bond yields depressed.
- The US inflation data fuels Fed rate hike bets, which support the USD and might cap the commodity.
- Traders also opt to wait for Fed Chair Kevin Warsh’s speech on Friday for cues about the policy path.
Gold (XAU/USD) surrenders modest intraday gains and trades just above the $4,600 mark heading into the European session on Thursday. The commodity, however, holds above the weekly low touched the previous day as traders opt to wait for US Federal Reserve (Fed) Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday for cues on the future policy path. The outlook, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding bullion.
In the meantime, the slightly hot US inflation data released on Wednesday backed the case for at least one Fed rate hike by the end of this year. In fact, data published by the Commerce Department showed that the US Personal Consumption Expenditures (PCE) Price Index remained unchanged at 3.7% in the 12 months through July, coming in higher than expectations. Adding to this, the core gauge, which excludes volatile food and energy prices, held steady at 3.3%, as anticipated. This points to still-sticky inflation and is likely to intensify the debate over whether interest rates should be lifted or held steady.
Despite hawkish Fed expectations, US bond yields remain depressed on the back of the US Treasury's buyback strategy. Adding to this, the latest optimism over a potential US-Iran peace deal and the reopening of the Strait of Hormuz cap the upside for the USD and offer some support to gold. In fact, media reports suggest that the US and Iran have reached a new ceasefire deal that would be announced in the coming days. Furthermore, Iran’s Deputy Foreign Minister Kazem Gharibabadi said on Tuesday that Tehran and Oman have agreed on a temporary maritime route for ships travelling through the waterway.
Gharibabadi, however, warned that the Strait will not fully reopen until the US fulfills its commitments under an interim peace deal signed in June, keeping the geopolitical risk premium in play. This, in turn, acts as a tailwind for crude oil prices and the safe-haven Greenback, which might keep a lid on the gold price. Hence, it will be prudent to wait for strong follow-through buying and a sustained move beyond the $4,700 mark before positioning for the resumption of the XAU/USD pair's upward trajectory witnessed since the beginning of this month.
XAU/USD daily chart
Technical Analysis
The precious metal holds a bullish near-term bias above the $4,525-$4,515 confluence – comprising the 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement of the March-June decline. Meanwhile, the Relative Strength Index (RSI) at 68.21 hovers near overbought territory, while the Moving Average Convergence Divergence (MACD) stays in positive territory. These indicators together suggest that upside momentum is still constructive but increasingly stretched.
Hence, it will be prudent to wait for a move beyond the 50% retracement level and the $4,700 mark before positioning for further gains. The subsequent move up could lift the Gold price to the 61.8% level at $4,861.14. Further north, the 78.6% retracement at $5,107.11 and the cycle high region near $5,420.42 form a broader bullish objective if buyers extend the advance. On the flip side, the $4,525-$4,515 confluence might continue to protect the immediate downside. A deeper pullback would expose the 23.6% level at $4,301.87 before the structural floor around the cycle low at $3,956.35.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.