- Gold prices remain stable above $2,500, supported by Fed minutes suggesting a possible rate cut at the next meeting.
- The US dollar index (DXY) falls 0.20% to 101.10, weakening the greenback and supporting the price of gold.
- Investors are focusing on upcoming US economic data and Fed Chairman Powell’s speech at the Jackson Hole Symposium on Friday.
Gold remained stable above $2,500 for the third day in a row after the US Federal Reserve (Fed) minutes opened the possibility of a rate cut at the upcoming September meeting, weakening the greenback. The XAU/USD rate is virtually unchanged at $2,511.
Investors cheered the contents of the minutes of the July Fed meeting, while Wall Street remained in positive territory. The greenback fell sharply by over 0.20%, as reflected by the US dollar index (DXY), which is at around 101.10.
The minutes showed that most Fed participants said that “it would probably be appropriate to ease monetary policy at the next meeting if data continued to be in line with expectations,” adding that progress in inflation and the rise in the unemployment rate opened the possibility of a quarter or one percentage point rate cut at the July meeting.
Although Fed officials voted unanimously to keep interest rates unchanged at the July meeting, many officials found them hawkish. Regarding the Fed’s dual mandate, risks have become more balanced, with most policymakers increasingly focused on achieving the mandate to achieve maximum employment, while inflation risks have declined slightly.
In addition, traders will be watching for a loose stimulus package, with initial jobless claims, S&P global purchasing managers’ indices and housing market data due to be released on Thursday.
On Friday, traders will watch Fed Chairman Jerome Powell speak at the start of the Jackson Hole Symposium hosted by the Kansas City Fed in Wyoming.
Daily summary of market drivers: Gold price stable after FOMC minutes
- Gold prices rose while US Treasury yields collapsed, with the 10-year US Treasury note falling 1.5 basis points (bps) to 3.792%.
- Following the release of the latest FOMC minutes, traders expect an easing of 102 basis points, according to the Chicago Board of Trade (CBOT) December 2024 Fed Funds futures contract.
- In the US, initial jobless claims data for the week ending August 17 are expected to rise to 230,000 (up from 227,000 in the previous week).
- Business activity released by S&P Global is expected to show a slight decline in the services PMI from 55 to 54. The manufacturing PMI is expected to remain unchanged at 49.6.
- Existing home sales are expected to increase from 3.89 million to 3.93 million.
Technical Analysis: Gold price will test $2,550 once it hits $2,530
Gold’s daily chart suggests that the yellow metal is likely to continue rising if buyers break the all-time high at $2,531. The momentum suggests that bulls are in charge, as shown by the Relative Strength Index (RSI).
Therefore, the first resistance for XAU/USD would be the $2,550 area, followed by the $2,600 level. Nevertheless, gold’s weakness and the metal’s reluctance to yield could see it fall back below the $2,500 level.
In this case, the next support would be the July 17 high at $2,483, followed by the May 20 high at $2,450. Once that is reached, the next stop would be the 50-day SMA (Simple Moving Average) at $2,395.
Frequently asked questions about gold
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Aside from its shine and use as a piece of jewelry, the precious metal is currently widely viewed as a safe haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency devaluation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In their efforts to support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence in a country’s ability to pay. According to the World Gold Council, in 2022 central banks added 1,136 tonnes of gold worth around $70 billion to their reserves. This is the highest annual purchase on record. Central banks from emerging markets such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the U.S. dollar and U.S. Treasuries, both of which are important reserves and safe haven assets. When the dollar depreciates, the price of gold tends to rise, allowing investors and central banks to diversify their investments during turbulent times. Gold also has an inverse correlation with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.
The price can change based on a variety of factors. Geopolitical instability or fear of a severe recession can quickly drive up the price of gold due to its safe-haven status. As a non-yielding asset, gold tends to rise when interest rates are lower, while higher money costs usually weigh on the yellow metal. However, most of the moves depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to keep gold prices in check, while a weaker dollar is likely to drive gold prices higher.
