Gold price slides below $3,300 amid a mildly positive USD; focus remains on US PCE
- Gold price meets with a fresh supply on Friday amid the emergence of some USD dip-buying.
- Trade tensions, geopolitical risks, and Fed rate cut bets should limit losses for the commodity.
- Traders look to the US PCE Price Index for Fed rate cut bets and a fresh impetus.
Gold price (XAU/USD) struggles to capitalize on the previous day's strong recovery move from the $3,246-3,245 region, or over a one-week low, and attracts fresh sellers during the Asian session on Friday. The US Dollar (USD) regains some positive traction following Thursday's dramatic intraday turnaround, amid some repositioning trade ahead of the pivotal inflation report from the US. This, in turn, is seen undermining demand for the bullion. However, a combination of factors should act as a tailwind for the commodity and help limit deeper losses.
A federal appeals court on Thursday paused a separate trade court ruling that blocked US President Donald Trump's tariffs. This adds to a layer of uncertainty, which, along with persistent geopolitical risks, should offer some support to the safe-haven Gold price. Moreover, the growing acceptance that the Federal Reserve (Fed) will lower borrowing costs further in 2025 might keep a lid on any meaningful USD appreciation and support prospects for the emergence of some dip-buying around the non-yielding yellow metal, warranting caution for bears.
Daily Digest Market Movers: Gold price drifts lower as repositioning trade ahead of US PCE leads to a modest USD uptick
- The overnight sharp US Dollar retracement slide lacks follow-through as bears seem reluctant ahead of the release of the crucial US Personal Consumption Expenditure (PCE) Price Index later this Friday.
- A federal appeals court on Thursday temporarily reinstated US President Donald Trump's sweeping trade tariffs, a day after a separate trade court deemed them illegal and ordered an immediate block.
- Meanwhile, the Wall Street Journal (WSJ) reported late Thursday that the Trump administration is considering an existing law that includes language allowing for tariffs of up to 15% for 150 days.
- Kremlin spokesman Dmitry Peskov said on Thursday, that Russia, so far, has now received a response from Ukraine over its proposal to hold the next round of peace talks in Istanbul next week.
- White House spokeswoman Karoline Leavitt told reporters that Israel has agreed to a US ceasefire proposal. Hamas said that the terms did not meet its demands, keeping geopolitical risks in play.
- Traders have been pricing in the possibility that the Federal Reserve (Fed) will step in to support the economy and deliver at least two 25 basis points interest rate cuts by the end of this year.
- However, Minutes of the FOMC May meeting released on Wednesday revealed a consensus to maintain the wait-and-see stance amid the uncertainty over the economic outlook and trade policies.
- Meanwhile, Chicago Fed President Austan Goolsbee noted that the US central bank could return to a situation where interest rates could come down if tariffs are avoided by a deal or otherwise.
- Moreover, San Francisco Fed President Mary Daly said that two rate cuts this year would make sense if the labor market stays solid and inflation falls, but the range of possible risks is large.
- Separately, Dallas President Lorie Logan said that risks to employment and inflation goals are roughly balanced. If the balance shifts, the Fed is well prepared to respond, Logan added further.
- Fed Chair Jerome Powell, on the other hand, met with the President on Thursday and reiterated that decisions on monetary policy are based on the incoming economic data from the US.
- Hence, Friday's crucial inflation data will play a key role in influencing expectations about the Fed's rate-cut path, which will drive the USD and provide a fresh impetus to the XAU/USD pair.
Gold price could extend downward trajectory to overnight swing low, around$3,246-3,245
From a technical perspective, the overnight failure near the $3,325-3,326 horizontal resistance and a subsequent slide below the $3,300 mark favor the XAU/USD bears. Moreover, oscillators on the 4-hour chart have again started gaining negative traction and back the case for a further intraday depreciating move for the Gold price. Hence, some follow-through weakness towards the $3,280 static support, en route to the overnight swing low around the $3,246-3,245 region, looks like a distinct possibility. A convincing break below the latter should pave the way for deeper losses and expose the $3,200 round figure.
On the flip side, the $3,325-3,326 area might continue to act as an immediate hurdle ahead of the $3,345-3,350 supply zone. A sustained strength beyond could negate the negative outlook and trigger a fresh bout of a short-covering move, which should allow the Gold price to reclaim the $3,400 mark. The momentum could extend further towards the next relevant barrier near the $3,432-3,434 region.
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.