- Gold price edges lower in Thursday’s early European session.
- Worries over the Fed’s independence might limit the downside for the Gold price.
- The second estimate of US Q2 GDP data will take center stage later on Thursday.
The Gold price (XAU/USD) trades in negative territory during the early European trading hours on Thursday. The precious metal retreats from a three-week high near $3,400 amid a rebound in the US Dollar (USD) and some profit-taking. Concerns about the Federal Reserve’s (Fed) independence lingered after US President Donald Trump fired Fed Governor Lisa Cook over allegations of mortgage borrowing misconduct. This, in turn, underpins the Gold price as it is considered a traditional safe-haven asset.
Gold traders await the second estimate of the US Gross Domestic Product (GDP) later on Thursday. The US economy is expected to grow at an annual rate of 3.1% in the second quarter (Q2). If the report shows a better-than-estimated outcome, this could lift the Greenback and weigh on the USD-denominated commodity price. On Friday, the attention will shift to the US Personal Consumption Expenditures (PCE) inflation data for clues on interest rate cuts.
Daily Digest Market Movers: Gold price drops as the US Dollar strengthens
- “We’ve got a lot of positive interest for gold because of that sort of issues with institutional trusts and risks about Fed’s independence,” said Kyle Rodda, Capital.com’s financial market analyst.
- New York Fed President John Williams on Wednesday emphasized the importance of central bank independence as Trump looks to exert control over monetary policy.
- US President Donald Trump stated on Monday that he has fired Fed Governor Lisa Cook, the first instance of a president firing a central bank governor in the Fed’s history.
- In response, Lisa Cook said that she would file a lawsuit to prevent her ouster, adding that Trump has no authority to fire her from the central bank, and she will not resign.
- Markets are now pricing in nearly an 87% possibility of a 25 basis point (bps) rate cut at the Fed’s policy meeting next month, according to the CME FedWatch tool.
- “If (the PCE data) is a miss showing stronger inflation, that might begin to call into question whether the Fed’s going to be able to cut interest rates in September,” said Jim Wyckoff, senior analyst at Kitco Metals.
Gold sticks to bullish bias in the longer term despite profit-taking
The Gold price is losing momentum on the day. The positive outlook of the precious metal remains intact, with the price being well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 56.55, indicating that further upside looks favorable in the near term.
The immediate resistance level for Gold emerges at the upper boundary of the Bollinger Band of $3,410. A decisive break above this level could pave the way to $3,439, the high of July 23. Further north, the next hurdle is seen at $3,500, the psychological level and the high of April 22.
On the flip side, the initial support level for XAU/USD is located at $3,351, the low of August 26. Extended losses could see a drop to $3,313, the lower limit of the Bollinger Band. The additional downside filter to watch is $3,275, the 100-day EMA.
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.
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