- Gold price remains under some selling pressure amid reduced bets for a Fed rate cut in July.
- The USD stands firm near a two-week high and contributes to the commodity’s offered tone.
- Tariff jitter weighs on investors’ sentiment, though it does little to impress the XAU/USD bulls.
Gold price (XAU/USD) touches a one-and-a-half-week low, around the $3,285-3,284 region during the Asian session on Wednesday, and seems vulnerable to slide further. Investors now seem convinced that higher US tariffs would underpin inflation in the coming months and force the Federal Reserve (Fed) to keep interest rates steady for an extended period. This has been a key factor behind the recent rise in the US Treasury bond yields, which keeps the US Dollar (USD) pinned near a two-week high and turns out to be a key factor undermining the non-yielding yellow metal.
Meanwhile, investors remain on edge amid concerns over the economic fallout from US President Donald Trump’s trade tariffs. This is evident from a generally weaker tone around the equity markets, albeit it does little to lend any support to the safe-haven Gold price. The XAU/USD bears, however, might refrain from placing aggressive bets and opt to wait for the release of FOMC meeting minutes for cues about the Fed’s rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the commodity.
Daily Digest Market Movers: Gold price remains depressed as inflation concerns temper Fed rate cut bets
- US President Donald Trump unnerved investors earlier this week by announcing higher tariff rates against a slew of major economies starting August 1. Moreover, Trump vowed to further escalate his trade wars on Tuesday, threatening US tariffs of up to 200% on foreign drugs and 50% on copper.
- Investors now seem convinced that US tariffs will eventually feed through into higher prices and allow the Federal Reserve to stick to its wait-and-see approach. Moreover, the upbeat US jobs report for June eased concerns about a slowing US economy, and a July Fed rate cut is completely off the table.
- This, in turn, pushed the yield on the benchmark 10-year US government bond and the US Dollar to a two-week high, making the non-yielding Gold price less attractive. The USD bulls, however, seem reluctant and opt to wait for more cues about the Fed’s rate cut path before placing fresh bets.
- Meanwhile, investors are still pricing in the possibility of 50 basis points worth of Fed rate cuts by the end of this year, starting in October. Hence, the minutes of the last FOMC meeting and speeches by several Fed officials this week will be looked for more insights into the central bank’s policy outlook.
- In the meantime, Trump’s rapidly shifting stance on trade policies and worries that steep US tariffs would negatively impact the global economy keep investors on edge. This might hold back traders from placing aggressive bearish bets around the safe-haven XAU/USD pair and limit deeper losses.
Gold price could extend the downward trajectory further towards the $3,248-3,247 support zone
The overnight failure near the 100-period Simple Moving Average (SMA) pivotal resistance on the 4-hour chart and acceptance below the $3,300 mark could be seen as a key trigger for the XAU/USD bears. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. Hence, a subsequent fall towards the next relevant support near the $3,270 horizontal zone, en route to the $3,248-3,247 region or the June monthly swing low, looks like a distinct possibility.
On the flip side, attempted recovery beyond the $3,310 immediate hurdle might now face some hurdle near the $3,326 area. Any further move up might continue to attract fresh sellers near the 100-SMA on the 4-hour chart, currently pegged near the $3,340 region. Some follow-through buying, leading to subsequent strength beyond the $3,359-3,360 supply zone, could trigger a short-covering move and allow the Gold price to reclaim the $3,400 round figure.
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.
