- Gold price trades with a negative bias for the second successive day on Wednesday.
- The downside seems limited as traders await more cues about the Fed’s rate-cut path.
- Hence, the focus remains glued to the release of the FOMC meeting minutes later today.
Gold price (XAU/USD) continues with its struggle to make it through the 50-day Simple Moving Average (SMA) pivotal resistance and trades with a mild negative bias during the Asian session on Wednesday. The commodity, however, remains confined in a familiar range held over the past week or so as traders prefer to wait for more cues about the Federal Reserve’s (Fed) policy path before placing fresh directional bets. Hence, the focus remains on the release of the FOMC meeting minutes later today. This, along with the Nonfarm Payrolls (NFP) report on Friday, might influence expectations about the Fed’s future policy decisions, which will drive the US Dollar (USD) and provide a fresh impetus to the non-yielding yellow metal.
In the meantime, the downside for the Gold price seems cushioned in the wake of growing acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September. The bets were reaffirmed by dovish-sounding remarks by Fed Chair Jerome Powell on Tuesday, which, along with a further pullback in the US Treasury bond yields, should keep the USD bulls on the defensive and act as a tailwind for the XAU/USD. Apart from this, concerns over a slowdown in global economic growth, persistent geopolitical tensions, along with political uncertainty in the US and Europe, should lend support to the safe-haven precious metal. This, in turn, warrants some caution for aggressive bearish traders and positioning for deeper losses.
Daily Digest Market Movers: Gold price bulls remain on the sidelines despite rising Fed rate cut bets
- Investors opt to wait on the sidelines and seek more clarity about the Federal Reserve’s rate-cut path, leading to subdued range-bound price action around the Gold price for the fourth straight day on Wednesday.
- Fed Chair Jerome Powell expressed satisfaction with the progress on inflation but said that he wants to be more confident that it is moving sustainably down toward 2% before starting the process of reducing rates.
- The markets are currently pricing in a greater chance that the Fed will lower borrowing costs in September and the possibility of another rate cut in December, triggering a pullback in the US Treasury bond yields.
- The yield on the benchmark 10-year US government bond retreats further from a one-month high touched on Monday, which keeps the US Dollar bulls on the defensive and acts as a tailwind for the commodity.
- This overshadowed the Job Openings and Labor Turnover Survey, or JOLTS report that showed US job openings rose to 8.140 million on the last day of May from April’s downwardly revised figure of 7.092 million.
- Expectations that a Trump presidency would lead to higher tariffs, and government borrowing and be more inflationary than the Biden administration should limit the downside for the US bond yields, in turn, the USD.
- Investors now look forward to the release of the FOMC meeting minutes, due later today, for some meaningful impetus ahead of the closely-watched US monthly employment details, or the NFP report on Friday.
- Wednesday’s US economic docket also highlights the release of the ADP report on private-sector employment and ISM Services PMI, which might influence the USD and produce short-term opportunities around the metal.
Technical Analysis: Gold price consolidates below 50-day SMA before the next leg of a directional move
From a technical perspective, the recent range-bound price action points to indecision among traders over the near-term trajectory. Moreover, neutral oscillators on the daily chart further warrant caution before placing aggressive directional bets. Meanwhile, the 50-day SMA, currently pegged near the $2,340 area, might continue to act as an immediate hurdle ahead of the late June swing high, around the $2,365-2,370 region. Some follow-through buying should allow bulls to reclaim the $2,400 round-figure mark and aim towards challenging the all-time peak, around the $2,450 area touched in May.
On the flip side, the $2,319-2,318 area now seems to have emerged as immediate strong support ahead of the $2,300 mark and the $2,285 horizontal zone. A convincing break below the latter will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to accelerate the fall further towards the 100-day SMA, currently near the $2,258 region. The metal could extend the downward trajectory further towards the $2,225-2,220 region before eventually dropping to the $2,200 round-figure mark.
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.