- Gold price trades with modest losses for the second straight day amid a positive risk tone.
- Geopolitical risks, bets for bigger Fed rate cuts and subdued USD demand to lend support.
- Traders might also prefer to wait for the release of the crucial US consumer inflation data.
Gold price (XAU/USD) attracts fresh sellers following an Asian session uptick to the $2,472-2,473 area and turns lower for the second successive day on Wednesday. A generally positive tone around the equity markets is seen as a key factor driving flows away from the safe-haven precious metal. Apart from this, the downtick could further be attributed to some repositioning trade ahead of the crucial US consumer inflation figures, due for release later today.
In the meantime, fears about a wider Middle East conflict and dovish Federal Reserve (Fed) expectations should help limit any further losses for the Gold price. Data published on Tuesday suggested that inflation continues to moderate and supports prospects for deeper interest rate cuts by the Fed. This keeps the US Dollar (USD) depressed near the one-week low and could lend support to the non-yielding yellow metal, warranting caution for aggressive bearish traders.
Daily Digest Market Movers: Gold price is pressured by positive risk tone, downside seems cushioned
- Gold price trades with modest losses for the second straight day on Wednesday, albeit lacking follow-through and remains well within striking distance of the all-time high touched in July.
- A Hamas official said on Tuesday that the group had decided not to participate in the talks because its leaders do not think the Israeli government has been negotiating in good faith.
- Iranian officials told Reuters that only a ceasefire deal in Gaza would hold Iran back from direct retaliation against Israel for the assassination of Hamas leader Ismail Haniyeh on its soil.
- The development increases the risk of a broader Middle East war and should act as a tailwind for the safe-haven metal amid bets for bigger interest rate cuts by the Federal Reserve.
- The US Bureau of Labor Statistics reported on Tuesday that the Producer Price Index (PPI) for final demand rose by 2.2% on a yearly basis in July, down from 2.7% in the previous month.
- On a monthly basis, the PPI increased 0.1%, while the core PPI (that excludes volatile food and energy components) missed estimates and remained flat during the reported month.
- The softer data provided more evidence of cooling inflation and opened the door for the Fed to begin its policy-easing cycle, triggering a fresh leg down in the US Treasury bond yields.
- Atlanta Fed President Raphael Bostic reiterated on Tuesday that he’ll likely be ready to cut by the end of the year, though he wants to see a little more data before supporting the move.
- The US Dollar languishes near its lowest level in over a week and could further benefit the XAU/USD as the focus now shifts to the closely-watched US Consumer Price Index (CPI).
- The headline CPI is anticipated to ease from the 3.0% YoY rate to 2.9% in July and the core CPI is seen coming in at 3.2% as compared to the 3.3% rise recorded in June.
- A weaker reading will further lift bets for a 50-basis points Fed rate cut in September and weigh on the Greenback, paving the way for further gains for the non-yielding yellow metal.
Technical Analysis: Gold price is likely to attract some dip-buying near the $2,448-2,450 resistance breakpoint
From a technical perspective, the recent rally from the 50-day Simple Moving Average (SMA) support and positive oscillators on the daily chart favor bullish traders. Hence, any meaningful slide might still be seen as a buying opportunity and remain limited. The Gold price seems poised to retest the record high, around the $2,483-2,484 area, and aim to conquer the $2,500 psychological mark. A sustained strength beyond the latter will mark a fresh breakout through a broader trading range held over the past month or so and set the stage for a further near-term appreciating move.
On the flip side, the $2,450-2,448 resistance breakpoint now seems to protect the immediate downside, below which the Gold price could slide back to the weekly low, around the $2,424-2,423 region touched on Monday. The next relevant support is pegged near the $2,412-2,410 area ahead of the $2,400 round-figure mark. Failure to defend the said support levels might turn the XAU/USD vulnerable to challenge the 50-day Simple Moving Average (SMA) support near the $2,378-2,379 region. Some follow-through selling might shift the bias in favor of bearish traders and expose the 100-day SMA support, currently near the $2,358-2,357 area. This is closely followed by the late July low, around the $2,353-2,352 area, which if broken should pave the way for deeper losses.
Risk sentiment FAQs
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 stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and 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 of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” 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 debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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