- Gold price remains below a one-week high amid mixed fundamental cues.
- A modest USD strength and a positive risk tone cap the safe-haven commodity.
- Rising September Fed rate cut bets support the XAU/USD pair amid trade jitters.
Gold price (XAU/USD) struggles to capitalize on its recent strong gains registered over the past three days and seesaws between tepid gains/minor losses, below a nearly two-week high through the early European session on Tuesday. The US Dollar (USD) gains some positive traction and acts as a headwind for the commodity. Apart from this, the upbeat market mood turns out to be another factor undermining the safe-haven precious metal.
However, the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle in September caps gains for the USD and offers support to the non-yielding Gold price. Furthermore, trade-related uncertainties contribute to limiting the downside for the precious metal. This, in turn, warrants some caution before confirming that the recent recovery from a one-month trough touched last week has run out of steam.
Daily Digest Market Movers: Gold price lacks firm direction as mildly stronger USD offsets Fed rate cut bets
- Traders ramped up their bets for rate cuts by the Federal Reserve following the release of the latest US jobs data, which pointed to a sharp deterioration in labor market conditions. According to the CME Group’s FedWatch Tool, traders now see over a 90% chance that the Fed will lower borrowing costs in September.
- The US Commerce Department’s Census Bureau reported on Monday that Factory Orders plunged 4.8% in June following an upwardly revised 8.3% rise in the previous month. This adds to concerns about the state of the US economy amid US President Donald Trump’s erratic trade policies and supports the Gold price.
- Trump signed an executive order last Thursday raising tariffs on dozens of countries, ranging from 10% to 41%, that go into effect on August 7. The Trump administration said that the universal tariff will remain at 10% for countries with which the US has a trade surplus, while nations with which the US has a trade deficit face a 15% floor.
- China and the US – the world’s two largest economic giants – are yet to agree on a trade deal. US Treasury Secretary Scott Bessent has said that any extension of the 90-day tariff truce, which is set to expire later this month, would be up to Trump. This keeps investors on edge and could benefit the safe-haven commodity.
- The US Dollar attracts some buyers and, for now, seems to have stalled the post-NFP downfall from an over one-month peak. This is holding back the XAU/USD bulls from placing fresh bets and caps the upside. Traders now look to the US ISM Services PMI for some impetus later during the North American session.
Gold price constructive technical setup backs the case for the emergence of dip-buying
From a technical perspective, Friday’s breakout through the $3,335 horizontal barrier and a subsequent strength beyond the 100-period Simple Moving Average (SMA) on the 4-hour chart favors the XAU/USD bulls. Moreover, oscillators on daily/4-hour charts have been gaining positive traction and back the case for an extension of a multi-day-old uptrend. Hence, any further slide below the $3,366-3,365 immediate support could be seen as a buying opportunity and remain limited near the $3,350-3,349 region. The latter represents the 200-period SMA on the 4-hour chart and should act as a key pivotal point, which, if broken, could make the Gold price vulnerable to accelerate the fall towards the $3,325-3,322 intermediate support en route to the $3,300 mark.
On the flip side, the overnight swing high, around the $3,385 region, now seems to act as an immediate hurdle ahead of the $3,400 round figure. Some follow-through buying should allow the Gold price to climb further towards the next relevant hurdle around the $3,434-3,435 area. The positive momentum could extend further and eventually lift the XAU/USD towards the all-time peak, around the $3,500 psychological mark touched in April.
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.
