Gold price edges lower amid modest USD uptick; September Fed rate cut bets limit losses

• Gold price kicks off the new week on a weaker note amid the emergence of some USD buying.
• Rising bets for a September Fed rate cut could cap the USD and limit losses for the commodity.
• Geopolitical risks and a weaker risk tone could further benefit the safe-haven precious metal.

Gold price (XAU/USD) pulls back from the $3,369 region, or over a one-week top touched during the Asian session on Monday, and for now, seems to have stalled last week's goodish recovery move from a one-month low. The US Dollar (USD) attracts some buyers at the start of a new week and reverses a part of Friday's weaker US jobs data-inspired slump amid a modest rebound in the US Treasury bond yields. This, in turn, is seen as a key factor acting as a headwind for the precious metal.

Any meaningful USD positive move, however, seems elusive in the wake of the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle in September. Apart from this, concerns about the central bank's independence might contribute to capping the USD and help limit the downside for the non-yielding Gold price. Furthermore, the deployment of US nuclear submarines near Russia keeps geopolitical risks in play and offers support to the safe-haven commodity.

Daily Digest Market Movers: Gold price is pressured by a modest USD strength; downside potential seems limited

• Weaker-than-expected US jobs data released on Friday boosted expectations for a Federal Reserve interest rate cut in September. This, along with fresh tariff announcements, pushed the Gold price sharply higher to a one-week top.
• The headline US Nonfarm Payrolls report showed that the economy added 73K new jobs in July, as against the 110K expected. Furthermore, readings for May and June were revised lower, pointing to further signs of a cooling US labor market.
• Other details of the report showed that the Unemployment Rate ticked higher to 4.2% from 4.1% in June, while the Labor Force Participation Rate edged down to 62.2% from 62.3%. Finally, Average Hourly Earnings rose to 3.9% from 3.8%.
• Meanwhile, US President Donald Trump ordered the firing of the head of the Bureau of Labor Statistics hours after the dismal employment details. Moreover, Fed Governor Adriana Kugler resigned from her position on the central bank’s board.
• This comes amid relentless political pressure on the Fed to lower borrowing costs and revives fears about the central bank's independence. This might keep a lid on any meaningful US Dollar recovery and benefit the non-yielding yellow metal.
• Trump ordered the deployment of two nuclear submarines near Russia in response to provocative comments from former Russian President Dmitry Medvedev, saying that each new ultimatum by Trump would be seen as a threat and a step towards war.
• This raises the risk of a further escalation of geopolitical tensions amid the protracted Russia-Ukraine war. This might turn out to be another factor lending some support to the safe-haven commodity and help limit any further depreciation.
• Traders now look forward to the release of US Factory Orders data, which, along with Fed rate-cut expectations, will drive the USD demand. Apart from this, the broader risk sentiment should provide some impetus to the XAU/USD pair.

Gold price bulls have the upper hand above 100-SMA on H4

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 the said chart have been gaining positive traction and back the case for the emergence of some dip-buying around the commodity. Hence, it will be prudent to wait for strong follow-through selling before confirming that the positive move witnessed over the past two days has run out of steam before positioning for deeper losses.

In the meantime, weakness below the 100-period SMA on the 4-hour chart, currently pegged near the $3,340-3,338 area, could attract fresh buyers near the $3,322-3,320 region. This, in turn, should help limit the downside for the Gold price near the $3,300 mark. The latter should act as a pivotal point, which, if broken, might shift the bias in favor of the XAU/USD bears.

On the flip side, momentum beyond the Asian session peak, around the $3,369-3,370 region, will reaffirm the positive bias and allow the Gold price to reclaim the $3,400 round figure. The momentum could extend further towards the next relevant hurdle around the $3,434-3,435 area, above which the XAU/USD could aim to challenge the all-time peak, around the $3,500 psychological mark touched in April.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.