- Gold price scales higher for the second straight day amid a combination of supporting factors.
- Trade jitters act as a tailwind for the safe-haven XAU/USD pair on the back of a softer USD.
- Declining US bond yields and Fed rate cut bets further benefit the non-yielding yellow metal.
Gold price (XAU/USD) trims a part of modest intraday gains, though it manages to retain positive bias for the second straight day and trades around the $3,320 area during the early European session on Thursday. Persistent uncertainties surrounding US President Donald Trump’s trade policies and their impact on the global economy keep investors on edge. Moreover, bets that the Federal Reserve (Fed) will lower borrowing costs this year continue to underpin the non-yielding yellow metal.
Meanwhile, the FOMC meeting minutes released on Wednesday revealed narrow support for a rate cut as early as this month. This, in turn, acts as a tailwind for the USD, which, along with a generally positive tone around the equity markets, caps the upside for the safe-haven Gold price. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further gains as traders look to the US Weekly Jobless Claims and Fed speaks for short-term opportunities.
Daily Digest Market Movers: Gold price bulls seem reluctant reduced Fed rate cut bets underpin USD
- US President Donald Trump issued tariff notices to eight minor trading partners on Wednesday and said that there will be no extensions for the countries that receive letters. Furthermore, Trump stressed that any retaliatory levies will be added to the existing US tariffs.
- Adding to this, Trump announced that the 50% tariff on copper imports will take effect on August 1. This adds a layer of uncertainty in the markets and turns out to be a key factor driving some follow-through safe-haven flows towards the Gold price on Thursday.
- Minutes from the Federal Reserve’s June 17-18 policy meeting revealed that most policymakers remain worried about the risk of rising inflationary pressure on the back of Trump’s aggressive trade policies. Moreover, some policymakers felt that no rate cut would be needed at all.
- However, most participants expected that rate cuts would be appropriate later this year and that any price shock from tariffs would be temporary or modest. This contributed to the fall in the US Treasury bond yields, triggered by a strong 10-year government debt auction.
- The US Dollar extends its retracement slide from a two-week high for the second straight day and turns out to be another factor that benefits the XAU/USD pair. Traders now look forward to the release of US Weekly Jobless Claims and speeches by Fed officials for a fresh impetus.
Gold price seems vulnerable while below the 100-SMA pivotal hurdle on H4, around $3,335 region
From a technical perspective, the 100-period Simple Moving Average (SMA) on the 4-hour chart, currently pegged near the $3,335 region, could cap any subsequent move up for the Gold price. This is followed by the $3,358-3,360 supply zone, which, if cleared, might trigger a short-covering move and allow the XAU/USD pair to reclaim the $3,400 round figure.
On the flip side, weakness below the $3,300 mark would expose the overnight swing low, around the $3,283-3,282 region. Some follow-through selling would make the Gold price vulnerable to accelerate the fall towards retesting the July monthly swing low, around the $3,248-3,247 region.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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