Gold is making another run to retest 15-week highs of $4,697 early Thursday. Gold traders are taking advantage of an upbeat mood-led US Dollar (USD) retreat, looking past hot US core Personal Consumption Expenditures (PCE) Price Index data for July.
Gold eyes US jobs data and Warsh
Renewed USD weakness offers the much-needed boost to Gold, following Wednesday’s pullback from near the $4,675 neighbourhood.
Fading hopes of an interest rate hike by the US Federal Reserve (Fed) at its September 16.-17 monetary policy decision act as a headwind to any recovery attempts in the Greenback, even though the buck witnessed a temporary rebound following hotter-than-expected headline PCE inflation readings for July.
The headline PCE Price Index increased a seasonally adjusted 0.2% for the month, putting the annual inflation rate at 3.7%, the Commerce Department reported Wednesday. The market forecast was for 0.1% and 3.6%, respectively. Meanwhile, core PCE posted gains of 0.2% and 3.3%, in line with forecasts.
The CME Group’s FedWatch Tool continues to show an over 60% probability that the Fed will keep rates on hold next month, with market expectations little changed post-PCE release.
Additionally, renewed optimism surrounding the reopening of the Strait of Hormuz, falling Oil prices and an upbeat earnings report from the Artificial Intelligence (AI) pioneer, Nvidia, undermine the USD’s safe-haven appeal.
Bloomberg reported late Wednesday that the Islamic Revolutionary Guard Corps (IRGC) reached a revenue-sharing agreement with Oman on the Strait of Hormuz, despite the ongoing standoff between Tehran over control of the crucial waterway.
Meanwhile, Nvidia reported that its quarterly revenue more than doubled and forecast third-quarter revenue above Wall Street estimates.
Looking ahead, if risk sentiment remains solid, Gold will likely stretch further north at the expense of the Greenback. The upcoming US Jobless Claims data will entertain traders in the absence of high-impact economic releases and as they gear up for Friday’s Fed Chair Kevin Warsh’s speech at the annual Jackson Hole Symposium.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,636.90. The metal holds well above the key simple moving averages (SMAs), with the 200-day SMA at $4,525.40 and the 21-day and 100-day SMAs clustered just below $4,380, reinforcing a bullish near-term bias as price extends away from its medium-term trend base. The Relative Strength Index (14) at 68.21 hovers near overbought territory, suggesting strong but somewhat stretched upside momentum.
Additionally, backing the bullish scenario, the 21-day SMA is awaiting a daily close above the 100-day SMA to confirm a Bull Cross.
On the downside, initial support emerges at the 200-day SMA near $4,525.40, while a secondary, denser demand zone is seen around the 21-day and 100-day SMAs at $4,378.11 and $4,376.74, ahead of the 50-day SMA at $4,201.18. As long as XAU/USD stays above these layers of trend support, the path of least resistance would likely remain to the upside, although the elevated RSI hints that any further gains could be vulnerable to a corrective pullback toward the $4,525 area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Dollar under pressure as rising US term premium outweighs yield moves
Analysts at ABN Amro highlight that the latest US Treasury announcement initially saw “US Treasury yields fell and the US Dollar came under even more pressure across the board.” They argue that “in this environment, the risk premium appears to be a more important driver of the US Dollar than nominal yields,” pointing out that “since the start of July, the US term premium has been on an upward trend, while the US Dollar has moved lower.”
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.
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