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- Gold rose for a second straight day on Friday, supported by expectations of a Federal Reserve policy easing in September.
- US economic data suggests growth is slowing, but not enough to raise fears of a recession.
- Continuing tensions in the Middle East between Israel, Lebanon and Iran keep demand for gold strong.
Gold prices rose modestly for the second day in a row as market participants remained convinced that Federal Reserve The Federal Reserve may begin easing monetary policy at its next meeting in September. This, coupled with rising tensions between Israel, Lebanon and Iran, keeps demand for gold high heading into the weekend. The XAU/USD pair is trading at $2,432, up 0.22%.
The latest tranche of economic data from the United States showed the economy is indeed slowing, but not to the point where it would raise fears of a recession. Concerns after dismal ISM data Manufacturing PMI July Non-agricultural sector salaries NFP numbers are starting to dissipate as reflected in the US. Stocks Making decent gains in late New York session.
Initial U.S. jobless claims for the week ended Aug. 3 came in lower than expected on Thursday, suggesting the labor market remains strong despite a moderate slowdown.
Gold prices remain steady as US Treasury yields and the dollar fall. The benchmark 10-year US Treasury note fell by five basis points to 3.944%, while the 10-year US Treasury note yield fell by five basis points to 3.944%. US Dollar Index The US Dollar Index (DXY), which measures the greenback’s performance against other currencies, fell 0.10% to 103.13.
Analysts at ING Bank suggest that gold will remain bullish in the near term. They wrote: “Looking ahead, we believe that [G]“Gold is expected to regain its balance again, amid ongoing geopolitical uncertainty and expectations of interest rate cuts by the US Federal Reserve.”
Gold/USD is expected to continue to rise amid tensions in the Middle East, with headlines hinting at an escalation of the conflict. Israeli defense officials are reported to have said the military is coordinating with the Pentagon to prepare scenarios for a response to Iran and Hezbollah.
Meanwhile, traders are preparing for next week’s data. The US economic calendar will be packed, with traders focusing on inflation data on both the producer and consumer sides, retail sales, building permits, and consumer sentiment.
Daily Market Movers Summary: Gold Rises Despite Lack of Buying from China
- The Producer Price Index is expected to decline in July from 0.2% to 0.1% on a monthly basis.
- The CPI is expected to decline from 3% y/y to 2.9%, while the core CPI is expected to continue its downward trend from 3.3% y/y to 3.2% y/y.
- Economists expect U.S. retail sales to rise from 0% to 0.3% on a monthly basis.
- Gold prices gained momentum despite reports that China’s central bank refrained from buying gold for the third straight month.
- The CME FedWatch tool shows the odds of a 50 basis point rate cut by the Fed at its September meeting at 52.5%, down from 57.5% a day earlier.
Technical Analysis: Gold Price Stabilizes Around $2430
Gold’s uptrend continues, although it faces strong resistance near $2,430, as buyers are unable to break that area before the psychological level of $2,450. The RSI shows that buyers are gaining momentum, which means prices are on their way up.
If buyers can push prices above $2,450, the next stop will be the August 2 high of $2,477, before testing the all-time high of $2,483. With further strength, $2,500 is up for grabs.
Conversely, a break below the 50-day SMA at $2,370 could intensify the decline, leading to the 100-day SMA at $2,349, followed by a support trend line around $2,320. If this level is broken, the next support comes at $2,300.
Frequently Asked Questions About Gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Today, aside from its luster and use in jewelry, the precious metal is widely viewed as a safe haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency devaluation as it is not dependent on any specific entity or government.
Central banks are the largest holders of gold. In an effort 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 currency. High gold reserves can provide confidence in a country’s ability to meet its obligations. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, both of which are major reserve assets and safe havens. When the dollar falls, gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. A rising stock market tends to weaken the price of gold, while a sell-off in riskier markets tends 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 cause the price of gold to rise rapidly due to its safe-haven status. As a non-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually weighs on the yellow metal. However, most of the movements 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 in check, while a weaker dollar is likely to push gold prices higher.
