Gold price fills opening gap amid subdued USD demand; bulls still seem reluctant
- Gold attracts some dip-buyers following a modest bearish gap opening at the start of a new week.
- The USD bulls move to the sidelines ahead of the FOMC meeting, lending support to the commodity.
- The latest trade optimism could act as a headwind for the safe-haven precious metal and cap gains.
Gold price (XAU/USD) attracts some buyers near the $3,312-3,311 region during the Asian session on Monday and fills a modest bearish gap opening amid subdued US Dollar (USD) price action. Traders opt to move to the sidelines ahead of the crucial two-day FOMC meeting, starting on Tuesday, which, in turn, fails to assist the USD to capitalize on its gains registered over the past two days and acts as a tailwind for the precious metal. Apart from this, this week's important US macro releases – the Advanced Q2 GDP print, the Personal Consumption Expenditure (PCE) Price Index, and the Nonfarm Payrolls (NFP) report – will drive the USD and provide a fresh impetus to the commodity.
In the meantime, a trade deal between the US and the European Union (EU) adds to the recent optimism, which, in turn, remains supportive of the upbeat market mood and could act as a headwind for the safe-haven Gold price. Furthermore, expectations that the Federal Reserve (Fed) would maintain the status quo on interest rates, despite US President Donald Trump's repeated calls to lower borrowing costs, favour the USD bulls. This might contribute to keeping a lid on the non-yielding yellow metal and warrants some caution before confirming that last week's sharp retracement slide from the monthly peak has run its course in the absence of any relevant macro data on Monday.
Daily Digest Market Movers: Gold price draws some support from a softer USD; upside seems limited
- US President Donald Trump and European Commission President Ursula von der Leyen announced a sweeping trade deal, with a baseline tariff of 15% on most European goods exported to the US. This comes on top of the recent news of a US-Japan trade deal, which, along with reports that US and Chinese officials are meeting again on Monday to extend the trade truce, boosts investors' appetite for riskier assets.
- The US Dollar kicks off the new week on a subdued note as traders opt to wait for more cues about the Federal Reserve's rate-cut path. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting starting on Tuesday. The Fed is widely expected to keep interest rates unchanged amid a still resilient US labor market and concerns that US tariffs could boost inflation in the second half of the year.
- Meanwhile, Trump has repeatedly attacked Fed Chair Jerome Powell personally over his stance on holding rates. This adds to worries that the Fed's independence could be under threat on the back of mounting political interference. Furthermore, Fed Governor Chris Waller and Trump appointee Vice Chair for Supervision Michelle Bowman have advocated a rate reduction at the July meeting, keeping the USD bulls on the defensive.
- Hence, the crucial FOMC decision on Wednesday, along with the accompanying policy statement and Powell's comments at the post-meeting press conference, will be scrutinized for cues about the Fed's rate-cut path. Apart from this, investors this week will also confront important US macro releases, which will play a key role in determining the USD trajectory and provide a fresh impetus to the non-yielding yellow metal.
Gold price could attract fresh sellers near 200-SMA on H4 timeframe
From a technical perspective, Friday's breakdown below a short-term ascending trend-channel support and the 50% Fibonacci retracement level of the recent upswing from the June swing low was 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. The commodity, however, showed some resilience below the 61.8% Fibo. retracement level and stages a modest recovery from the $3,312-3,311 region on Monday. Hence, it will be prudent to wait for some follow-through selling below the said area before positioning for deeper losses. The commodity could then weaken further below the $3,300 mark and retest the monthly low, around the $3,283-3,282 zone.
On the flip side, any further move up is more likely to confront stiff resistance and remain capped near the 200-period Simple Moving Average (SMA) on the 4-hour chart. The said barrier is pegged near the $3,351-3,352 region, above which a bout of short-covering could lift the Gold price to the $3,371-3,373 supply zone. Some follow-through buying should pave the way for a move towards reclaiming the $3,400 mark before the XAU/USD climbs further to the $3,438-3,440 static barrier.
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.