- Gold price ticks down during the Asian session on Wednesday, though lacks follow-through.
- Hawkish central banks and a modest US Dollar strength act as a headwind for the XAU/USD.
- Traders now keenly await the FOMC meeting minutes before placing fresh directional bets.
Gold price edges lower during the Asian session on Wednesday and erodes a part of the previous day’s modest gains back closer to the $1,930-$1,931 region or the weekly top. The XAU/USD currently trades around the $1,924-$1,923 region, down less than 0.10% for the day, as traders keenly await the release of the Federal Reserve’s (Fed) latest monetary policy meeting minutes.
Focus remains on June FOMC meeting minutes
The Fed had indicated the need for a 50 basis points (bps) interest rate hike before the end of the year at the end of the June 13-14 policy meeting. That said, the incoming macro data from the United States (US) raised questions over how much headroom the Fed has to continue tightening its monetary policy. In fact, the US Bureau of Economic Analysis reported last Friday that inflation pressures eased slightly in May as consumer spending slowed considerably. Furthermore, the Institute for Supply Management’s (ISM) Manufacturing PMI registered the eighth straight month of contraction and dropped to its lowest level since May 2022. Hence, the minutes will be closely scrutinised for clues about the Fed’s future rate-hike path, which, in turn, will play a key role in determining the next leg of a directional move for the non-yielding Gold price.
Hawkish central banks weigh on Gold price
In the meantime, growing acceptance for a 25-bps lift-off at the next Federal Open Market Committee (FOMC) policy meeting on July 25-26 remains supportive of elevated US Treasury bond yields and acts as a tailwind for the US Dollar (USD). This, in turn, is seen as a key factor weighing on the US Dollar-denominated Gold price. Apart from this, a hawkish outlook by other major central banks further contributes to capping gains for the XAU/USD. The downside, however, remains cushioned in the wake of worries about a global economic downturn, particularly in China, which tends to benefit the safe-haven precious metal. The concerns were further fueled by the disappointing release of China’s Services Purchasing Managers’ Index (PMI) on Wednesday, which tumbled to 53.9 in June from 57.1 reported in the previous month. Apart from this, the worsening US-China trade ties should help limit deeper losses for the commodity, at least for the time being.
Worsening US-China ties could help limit losses for XAU/USD
In fact, China imposed restrictions on two metals widely used in semiconductors, electric vehicles and high-tech industries. The move, which is set to take effect on August 1, could potentially cause more disruption to global supply. The Chinese commerce ministry said that the measure was aimed at safeguarding national security, though market participants view this as a response to efforts by the US to curtail China’s technological advances. Nevertheless, the abrupt announcement could ramp up a trade war with the US, which might hold back traders from placing aggressive bearish bets around the Gold price. This makes it prudent to wait for strong follow-through selling before confirming that the recent recovery move from the $1,893-$1,892 area, or the lowest level since mid-March has run its course and positioning for deeper losses.
Gold price technical outlook
From a technical perspective, the $1,931 area, or the weekly high, might continue to act as an immediate barrier ahead of the 100-day Simple Moving Average (SMA), currently around the $1,942 region. A sustained strength beyond the latter might trigger a short-covering rally and lift the Gold price to the $1,962-$1,964 zone en route to the $1,970-$1,972 supply zone. Some follow-through buying should allow bulls to reclaim the $2,000 psychological mark and test the $2,010-$2,012 resistance.
On the flip side, any subsequent slide now seems to find some support near the $1,908-$1,907 area ahead of the $1,900 round-figure mark and the multi-month low, around the $1,893-$1,892 region touched last week. A convincing break below the said support levels will make the Gold price vulnerable to accelerate the downward trajectory and expose the very important 200-day Simple Moving Average (SMA), currently around the $1,860 zone.