- Gold prices continued their rally in Asian trading on Wednesday.
- The deteriorating situation in the Middle East and the Fed’s dovish stance are supporting the price of gold.
- Traders await speeches by Waller and Bostic from the Fed on Wednesday.
Gold prices (XAU/USD) are rising above $2,500 per troy ounce on Wednesday, supported by escalating geopolitical tensions in the Middle East. In addition, Federal Reserve (Fed) Chairman Jerome Powell’s speech at the Jackson Hole symposium last week, in which he signaled that “the time has come” to start cutting interest rates, is supporting the precious metal as it lowers the opportunity cost of holding non-interest-bearing assets.
Investors will be looking more closely to speeches by Fed’s Christopher Waller and Raphael Bostic on Wednesday for guidance on the US interest rate path. Attention will be focused on preliminary US annualized gross domestic product (GDP) data for the second quarter (Q2) and personal consumption expenditures (PCE) price index, due to be released on Thursday and Friday respectively. The better-than-expected results could lift the US dollar (USD) and limit the upside of the USD-denominated gold price.
Daily Digest Market Movers: Gold price remains strong near record high
- Thousands of special forces soldiers have been mobilized for a large-scale operation in the northern West Bank that is expected to last several weeks. The report says the army has carried out the largest military operation in the West Bank since 2002 and the operation will last several days.
- “The prospect of falling interest rates is also attracting investors. According to Bloomberg, gold ETF holdings rose by 15 tons last week to their highest level in six months. Speculative interest is particularly strong. The net long position of speculative investors rose to around 193,000 contracts in the week up to August 20, coinciding with the all-time high of the gold price, the highest level in almost four and a half years,” said Commerzbank commodity strategist Carsten Fritsch.
- The Conference Board’s U.S. consumer confidence index improved to a six-month high, rising in August from 101.9 in July (upward revised).
- As the Federal Housing Agency (FHA) announced on Tuesday, the US real estate price index fell by 0.1 percent in June compared to the previous month, below the market forecast of a 0.2 percent increase.
- According to the CME FedWatch tool, interest rate futures markets have fully priced in a 25 basis point (bp) rate cut in September, while the possibility of an even deeper rate cut stands at 34.5%. Traders expect the Fed to ease by 100 bp this year.
Technical Analysis: Gold price maintains bullish sentiment in the long term
Gold prices are rising slightly on the day. The precious metal remains capped below the upper boundary of a five-month-old ascending channel and the record high. The overall positive outlook for the yellow metal remains unchanged as it holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upside momentum is supported by the 14-day Relative Strength Index (RSI), which is above the midline at 64.70, confirming sustained upside pressure in the near term.
The key resistance for XAU/USD is at $2,530, which represents the confluence of the all-time high and the upper boundary of the trend channel. A bullish breakout above this level could mean an attack on the psychological barrier at $2,600.
On the downside, the first support level is around $2,500. A break of this level could lead to further losses to $2,470, the low of August 22. The next contention level to watch is $2,432, the low of August 15.
US dollar price today
The table below shows the percentage change in the US dollar (USD) against major listed currencies today. The US dollar was weakest against the Australian dollar.
| USD | EUR | GBP | CAD | AUD | EUR | NZD | CHF | |
| USD | 0.03% | 0.03% | -0.02% | -0.22% | 0.24% | -0.01% | 0.10% | |
| EUR | -0.02% | 0.00% | -0.04% | -0.24% | 0.24% | -0.03% | 0.09% | |
| GBP | -0.05% | -0.02% | -0.06% | -0.26% | 0.21% | -0.05% | 0.07% | |
| CAD | 0.02% | 0.04% | 0.05% | -0.19% | 0.27% | 0.01% | 0.12% | |
| AUD | 0.21% | 0.23% | 0.24% | 0.19% | 0.46% | 0.21% | 0.31% | |
| EUR | -0.24% | -0.22% | -0.23% | -0.26% | -0.45% | -0.25% | -9914.98% | |
| NZD | 0.01% | 0.07% | 0.03% | 0.02% | -0.21% | 0.27% | 0.12% | |
| CHF | -0.11% | -0.09% | -0.08% | -0.12% | -0.32% | 0.14% | -0.12% |
The heatmap shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box corresponds to the EUR (base)/JPY (quote) ratio.
Frequently asked questions about risk sentiment
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 take during the period in question. In a “risk on” market, investors are optimistic about the future and are 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 to produce a return, even if it is relatively small.
In times when risks are high, stock markets typically rise, and most commodities – except gold – also gain value as they benefit from positive growth prospects. The currencies of countries that are major commodity exporters strengthen due to increased demand, and cryptocurrencies rise. In a “risk-off” market, bonds – especially large government bonds – rise, gold shines, and safe haven currencies like the Japanese yen, Swiss franc and US dollar benefit.
The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD), and smaller currencies such as the Ruble (RUB) and South African Rand (ZAR) all tend to rise in risk-on markets. This is because the economies of these currencies are heavily dependent on commodity exports for growth, and commodity prices tend to rise during risk-on times. This is because investors expect higher demand for commodities in the future due to increased economic activity.
The main currencies that tend to rise during times of “risk aversion” 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 bonds, which are considered safe since the world’s largest economy is unlikely to default. The yen because demand for Japanese government bonds has increased because a large portion of them are held by domestic investors who are unlikely to dump these bonds – even in a crisis. The Swiss franc because Switzerland’s strict banking laws offer investors better capital protection.
