- Gold price attracts some safe-haven flows in reaction to Trump’s fresh tariff threats.
- Rising bets for a Fed rate cut in September also benefit the non-yielding commodity.
- The USD drops to a nearly two-week low and offers additional support to XAU/USD.
Gold price (XAU/USD) climbs to the top end of the weekly range during the early part of the European session on Thursday as fresh trade concerns boost demand for traditional safe-haven assets. Apart from this, the growing acceptance that the US Federal Reserve (Fed) will resume its rate-cutting cycle in September turns out to be another factor driving flows towards the non-yielding yellow metal and contributing to the positive move.
Meanwhile, dovish Fed expectations drag the US Dollar (USD) to a nearly two-week low in the last hour, which offers additional support to the Gold price. Even a generally positive tone around the equity markets does little to dent the intraday bullish sentiment surrounding the precious metal. This suggests that the path of least resistance for the XAU/USD pair is to the upside, though bulls might await a move beyond the $3,400 mark.
Daily Digest Market Movers: Gold price bulls look to seize control amid trade tensions, weaker USD
- US President Donald Trump on Wednesday signed an executive order imposing an additional 25% tariff on Indian imports as “punishment” for buying oil from Russia, taking the total tariffs to 50%. Furthermore, reports suggest that Trump could impose an extra 15% tariff on all Japanese imports.
- Moreover, Trump had announced earlier this week that US tariffs on semiconductor and pharmaceutical imports would be unveiled within the next week or so. This revives concerns about the potential economic fallout from a global trade war and boosts the safe-haven Gold price on Thursday.
- Traders have been pricing in the possibility of more interest rate cuts than previously expected by the Federal Reserve this year. The bets were lifted by the weaker-than-expected US Nonfarm Payrolls report released last Friday and Tuesday’s disappointing US ISM Services PMI print.
- According to the CME Group’s FedWatch Tool, market participants see over a 90% chance that the US central bank will lower borrowing costs at the next monetary policy meeting in September. Moreover, the Fed is expected to deliver at least two 25-basis-point rate cuts by the end of this year.
- Dovish Fed expectations fail to assist the US Dollar in registering any meaningful recovery from a one-week low touched on Wednesday and further benefit the non-yielding yellow metal. However, a positive risk tone, tracking overnight gains on Wall Street, caps gains for the precious metal.
- Traders now look forward to the US Weekly Initial Jobless Claims, due for release later during the North American session. This, along with speeches from influential FOMC members, would drive the USD demand and produce short-term trading opportunities around the XAU/USD pair.
Gold price bulls might still await a sustained move beyond the $3,400 mark before placing fresh bets
From a technical perspective, the commodity has been struggling to capitalize on the recent strength beyond the $3,380-3,385 region. Moreover, mixed oscillators on the daily chart warrant caution for the XAU/USD bulls. That said, this week’s bounce from the 200-period Simple Moving Average (SMA) on the 4-hour chart backs the case for a further appreciating move. Some follow-through buying beyond the $3,400 mark will reaffirm the constructive outlook and lift the Gold price to the $3,420-3,422 intermediate hurdle en route to the $3,434-3,435 supply zone. A strength move beyond the latter would set the stage for a move towards retesting the all-time peak, around the $3,500 psychological mark touched in April.
On the flip side, any corrective pullback might continue to find decent support near the $3,350 area. This is closely followed by the 200-period SMA on the 4-hour chart, which, if broken decisively, might prompt some technical selling and drag the Gold price to the $3,315 intermediate support en route to the $3,300 round figure. Acceptance below the latter would expose the $3,268 region, or a one-month low touched last week.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Read the full article here
