Gold prices (XAU/USD) saw a modest recovery from a two-day low of $2,380 during Thursday’s European session. The precious metal remains buoyant, supported by market expectations that the Federal Reserve (Fed) will begin reducing interest rates at its September meeting.
Aiding this stability, corrections in the US Dollar (USD) and bond yields have provided a cushion for gold prices. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, has fallen to approximately 103.00 from a three-day high of 103.37. Concurrently, 10-year US Treasury yields have dropped to near 3.90%. Historically, lower yields on interest-bearing assets benefit non-yielding assets like gold by decreasing the opportunity cost of holding them.
The CME FedWatch tool indicates that 30-day Federal Funds futures suggest traders expect a 50-basis point (bp) interest rate cut in September, with projections for over 100 bps reduction by year-end. This aggressive stance by the Fed is driven by signs of a softening labor market, evidenced by slower job growth and a rising unemployment rate in July.
Market Movers: Gold Benefits from Multiple Tailwinds
Gold’s price remains steady due to several supportive factors. Increased expectations for Fed rate cuts and escalating Middle East tensions have limited gold’s downside. Concerns about the US economy’s ability to handle higher interest rates have bolstered prospects for significant Fed rate cuts.
Despite traders anticipating aggressive rate cuts, recent US economic data has not shown a substantial slowdown. While the ISM Manufacturing Purchasing Managers’ Index (PMI) contracted more than expected in July, the services sector, which constitutes two-thirds of the economy, expanded robustly.
Commenting on the Services PMI, Chris Williamson, chief business economist at S&P Global Market Intelligence, noted, “The July surveys indicate the economy continues to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualized 2.2% pace.”
Geopolitical tensions between Iran and Israel have also supported gold’s safe-haven appeal. Saudi Arabia condemned the killing of a Hamas leader in Tehran as a ‘blatant violation’ of Iran’s sovereignty, while Israel has vowed to eliminate the new Hamas chief, Yahya Sinwar.
Investors are closely watching for the US Initial Jobless Claims data for the week ending August 2, to be released at 12:30 GMT. The Department of Labor is expected to report 240,000 new jobless claims, down from the previous 249,000.
Technical Analysis: Gold Near $2,400
Gold prices are trading within a channel formation on a daily timeframe, showing slight upward movement but a generally sideways trend over the past three months. The 50-day Exponential Moving Average (EMA) near $2,370 continues to support gold price bulls.
The 14-day Relative Strength Index (RSI) remains in the 40.00-60.00 range, indicating market indecisiveness.
A potential upside breakout could occur if gold prices surpass the all-time high of $2,483.75, pushing it into uncharted territory.
On the downside, the upward-sloping trendline at $2,225, extending from the October 6 low near $1,810.50, serves as significant long-term support.
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