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- Gold price continues to draw support from dovish Fed-inspired USD selling bias.
- Worries about a US economic downturn further underpin the safe-haven metal.
- Traders turn cautious ahead of the release of the crucial US employment details.
Gold price (XAU/USD) climbed closer to the $2,524-2,525 supply zone on Thursday amid some follow-through US Dollar (USD) selling, led by bets for a larger interest rate cut by the Federal Reserve (Fed) later this month. A mixed bag of employment data released from the United States (US) this week suggested that the labor market was losing steam and triggered worries about the health of the economy. This, in turn, lifted market expectations about the possibility of a more aggressive policy easing by the Fed, which dragged the USD away from a two-week high touched on Tuesday and benefited the non-yielding yellow metal.
Meanwhile, renewed fears of a downturn in the world’s largest economy tempered investors’ appetite for riskier assets. This, along with persistent geopolitical tensions, turned out to be another factor underpinning demand for the safe-haven Gold price. The XAU/USD, however, remains below the all-time peak touched in August as traders opt to wait for the release of the closely-watched US monthly employment details later this Friday. The popularly known as the Nonfarm Payrolls (NFP) report will be looked upon for cues about the Fed’s rate-cut path, which, in turn, will provide a fresh directional impetus to the precious metal.
Daily Digest Market Movers: Gold price benefits from bets for a larger interest rate cut by the Fed in September
- The ADP National Employment Report published on Thursday showed that US private-sector employment rose 99,000 in August, marking the smallest gain since January 2021.
- The reading was well below the market expectation of 145,000 and was accompanied by a downward revision of the previous month’s print to 111,000 from 122,000 estimated originally.
- This comes on top of a report on Wednesday showing that job openings fell to 7.673 million, or a three-and-a-half-year low in July and provided further evidence of a deteriorating labor market.
- The Institute for Supply Management’s (ISM) Services PMI inched up from 51.4 to 51.5 in August, while the Prices Paid Index rose to 57.3 from 57 and the Employment Index declined to 50.2 from 51.1.
- Separately, the US Department of Labor (DoL) reported that Initial Jobless Claims declined more than anticipated, to 227K in the week ending August 31 from the previous weekly figure of 232K.
- San Francisco Fed President Mary Daly said that the US central bank must calibrate policy to the evolving economy and cut policy rates because inflation is falling and the economy is slowing.
- Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of the labor market and inflation data justify easing interest-rate policy soon and then steadily over the next year.
- According to the CME Group’s FedWatch Tool, the markets are pricing in a 40% chance that the Fed will lower borrowing costs by 50 basis points at the September 17-18 monetary policy meeting.
- Dovish expectations, meanwhile, keep the US Treasury bond yields depressed and the US Dollar bulls on the defensive, which, in turn, should act as a tailwind for the non-yielding Gold price.
- The market focus now shifts to the crucial US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 160K jobs in August and the Unemployment Rate ticked lower to 4.2%.
Technical Analysis: Gold price could accelerate the positive move once the $2,524-2.525 hurdle is cleared decisively
From a technical perspective, momentum beyond the $2,524-2,525 immediate hurdle will be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the Gold price is to the upside. Some follow-through buying beyond the all-time peak, around the $2,531-2,532 area touched on August 20, will reaffirm the constructive outlook and pave the way for a further appreciating move.
On the flip side, the $2,500 psychological mark now seems to protect the immediate downside below which the Gold price could slide back to the $2,471-2,470 horizontal support. A convincing break below the latter will set the stage for deeper losses towards the 50-day Simple Moving Average (SMA), currently pegged near the $2,440 region, en route to the $2,400 mark and the 100-day SMA, around the $2,388 zone.
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.