- Gold price gains ground in Tuesday’s early European session.
- Concerns over Fed’s independence and potential US Fed rate cut support the Gold price.
- The US CB Consumer Confidence and Durable Goods Orders reports will be the highlights later on Tuesday.
The Gold price (XAU/USD) rises to a two-week high near $3,385 during the early European trading hours on Tuesday. The precious metal edges higher amid concerns about the US Federal Reserve’s (Fed) independence after the report that US President Donald Trump says he is removing Fed Governor Lisa Cook. Additionally, signs that the US central bank will resume cutting interest rates provide some support to the yellow metal, as lower interest rates could reduce the opportunity cost of holding Gold.
Looking ahead, the US Conference Board’s Consumer Confidence, Durable Goods Orders and the Richmond Fed Manufacturing Index reports are due later on Tuesday. Later this week, the key US economic data will be released, including Gross Domestic Product (GDP) for the second quarter and Personal Consumption Expenditures (PCE) Price Index data for July. If the report shows stronger-than-expected growth or any signs of hotter inflation, this might boost the Greenback and weigh on the USD-denominated commodity price.
Daily Digest Market Movers: Gold price edges higher on Fed’s independence and US rate cut hopes
- “Gold prices reached their highest level in two weeks amid heightened political uncertainty after President Donald Trump fired Federal Reserve Governor Lisa Cook. Meanwhile, Fed Chair Jerome Powell last Friday signalled a possible rate cut in September, highlighting growing risks to the labour market but also noting inflation remained a threat and that no decision has been finalised,” said Jigar Trivedi, Senior Research Analyst at Reliance Securities.
- “I have determined that there is sufficient cause to remove you from your position,” Trump said in a letter to Cook posted on his Truth Social platform, claiming there was enough evidence that Cook had made false statements on mortgage applications.
- Fed Chair Jerome Powell stated at the Jackson Hole symposium that the US central bank could consider a rate cut at its next policy meeting in September.
- Powell added that the US economy is facing a “challenging situation,” with inflation risks now tilted to the upside and employment risks to the downside.
- Dallas Fed President Lorie Logan on Monday said she feels the Fed has more room to reduce its reserves, and she expects banks to turn to its standing repo facility next month to alleviate any liquidity pressures.
- Markets are now pricing in nearly an 84.3% possibility for a cut of at least a quarter-point at the Fed’s policy meeting next month, down slightly from the 84.7% in the previous session, according to CME’s FedWatch tool, but well above the 61.9% expectation a month ago.
Gold keeps the bullish vibe in the longer term
The Gold price trades in positive territory on the day. According to the daily chart, the positive outlook of the precious metal remains intact as the price holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 55.0. This displays bullish momentum in the near term.
On the bright side, the key upside barrier for Gold emerges in the $3,400-3,410 zone, representing the psychological level, the upper boundary of the Bollinger Band, and the high of August 8. Extended gains could pave the way to $3,439, the high of July 23. The next resistance level is seen at $3,500, the round figure, and the high of April 22.
In the bearish event, the initial support level for the yellow metal is located at $3,325, the low of August 21. A breach of this level could see a drop to $3,285, the lower limit of the Bollinger Band. The crucial contention level to watch is $3,270, the 100-day EMA.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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