Gold rises as Powell steers middle-way while market still price in rate cuts


content provided with permission by FXStreet


  • Gold
    rises
    as
    Powell
    sets
    a
    cautiously
    optimistic
    tone
    on
    his
    second
    day
    of
    testimony
    to
    lawmakers
    in
    Washington. 

  • Although
    he
    did
    not
    state
    when
    the
    Fed
    would
    propose
    to
    cut
    interest
    rates,
    he
    indicated
    it
    might
    be
    soon. 

  • Market-based
    gauges
    continue
    to
    show
    a
    high
    probability
    of
    a
    rate
    cut
    in
    September

    a
    positive
    for
    Gold. 

Gold
(XAU/USD)
trades
up
almost
half
a
percent
in
the
$2,380s
on
Thursday
as
markets
continue
to
foresee
interest-rate
cuts
coming
down
the
track.
In
his
second
day
of
testimony
to
US
lawmakers,
Federal
Reserve
(Fed)
Chairman
Jerome
Powell
steered
a
middle
way
between
cautious
optimism
that
inflation
would
come
down
without
causing
too
many
job
losses

achieving
what
economists
call
a
“soft-landing”

while
retaining
a
data-dependent
vigilant
approach
to
inflation.  

His
comments
supported
Gold,
which
performs
better
when
interest
rates
are
expected
to
fall,
since
lower
interest
rates
increase
the
asset’s
attractiveness
to
investors
by
reducing
the
opportunity
cost
of
holding
it. 

Gold
is
also
benefiting
from
further
emerging
data
showing
that
central
banks
are
continuing
to
hoard
all
over
the
world.
This
comes
despite
the
news
on
Sunday
that
the
largest
consumer
of
Gold,
the
People’s
Bank
of
China
(PBoC),
stopped
buying
the
precious
metal
for
the
second
month
running
in
June,
following
an
18-month
buying
bonanza.

Gold
rises
as
Powell
steers
middle-way,
markets
see
cuts
coming 

Gold
gained
on
Wednesday
after
markets
assessed
Fed

Chairman
Jerome
Powell

as
cautiously
optimistic
in
his
second
day
of
testimony
to
US
lawmakers
in
Washington. 

In
comments
to
the
House
Financial
Services
Committee
Powell
said
that
“We
see
current
Fed
policy
as
restrictive,”
indicating
that
at
their
current
level,
interest
rates
were
successfully
doing
the
job
of
bringing
inflation
back
down
to
the
Fed’s
2.0%
target. 

When
asked
about
the
timing
of
future
Fed
interest-rate
cuts
and
whether
he
would
wait
for
the
Fed’s
preferred
gauge
of
inflation,
the
Personal
Consumption
Expenditures
(PCE)
Price
Index,
to
fall
below
the
Fed’s
target
before
pulling
the
trigger,
Powell
said
that
he
would
not,
because,
“inflation
has
a
certain
momentum,”
and
“you
don’t
want
to
wait
until
inflation
gets
all
the
way
down
to
2.0%.”
At
its
last
reading,
both
headline
and
core
PCE
fell
to
2.6%,
suggesting
the
Fed
might
not
be
that
far
away
from
making
rate
cuts.

This
reinforced
current
market-based
barometers
of
when
the
Fed
will
cut
interest
rates.
The
CME
FedWatch
tool
continues
to
see
a
high
70%
probability
of
a
0.25%
cut
in
the
Fed
Funds
rate

the
Fed’s
primary
policy
interest
rate

in
September.
Such
a
cut
would
bring
the
policy
rate
down
to
an
upper
bound
of
5.25%.
The
CME
FedWatch
tool
bases
its
probability
on
the
price
of
30-day
Fed
Funds
futures
prices.  

Although
investors
had
been
hoping
for
more
concrete
details
of
when
the
Fed
would
cut
interest
rates,
Powell’s
overall
optimism
about
achieving
a
“soft-landing”
for
the
economy

when
inflation
falls
back
to
target
without
unemployment
rising
too
high

buoyed
sentiment.
That
said,
Friday’s
official
jobs
report,
the
Nonfarm
Payrolls
release,
reported
the

US
Unemployment
Rate

rising
to
4.1%
from
4.0%,
when
no
rise
had
been
expected.
It
was
the
third
month
of
increase
in
a
row. 

Gold
buoyed
by
central
bank
buying

Gold
makes
further
gains
on
Thursday
due
to
the
emergence
of
data
showing
central
banks
around
the
world
are
still
hoarding
Gold
despite
the
news
that
the
largest
consumer,
the
People’s
Bank
of
China
(PBoC),
has
ceased
Gold
purchases
for
two
months
running
in
June. 

Despite
the
PBoC’s
absence
from
the
market,
which
accounts
for
over
a
quarter
of
buying,
the
Bank
of
India
(BOI)
bought
nine
tons
of
Gold
in
June,
the
National
Bank
of
Poland
four
tons,
and
the
Czech
National
Bank
two
tons,
according
to
TD
Securities. 

Analysts
at
Citibank
remain
optimistic
about
central-bank
demand,
which
they
see
rising
in
the
second
half
of
the
year
to
reach
a
total
of
around
1,100
tons
in
2024,
a
5.8%
increase
from
the
previous
year.
They
put
the
gains
down
to
an
increasing
likelihood
of
trade
wars
and
concerns
about
US
fiscal
policies. 

To
that
end,
Citibank’s
official
forecast
is
for
Gold
to
hit
$2,600
by
the
end
of
2024. 

Meanwhile,
Bert
Melek,
Head
of
Commodity
Strategy
at
TD
Securities,
forecasts
Gold
to
hit
$2,475
in
Q1
of
2025.

Technical
Analysis:
Gold
rising
for
third
day
in
a
row

Gold
makes
gains
for
the
third
day
in
a
row
following
the
formation
of
a
bearish
Two-Bar
reversal
pattern
(green-shaded
rectangle
in
the
chart
below)
at
the
top
of
the
early
July
up
move.
This
pattern
forms
after
a
long
green-up
day
is
followed
by
a
long
red-down
day
of
a
similar
length
and
size.
It
can
be
a
sign
of
a
short-term
reversal.
In
the
case
of
Gold
this
has
not
played
out.

XAU/USD
Daily
Chart


The

outlook

is
unclear.
There
is
still
a
risk
Gold
could
pull
back
to
the
50-day
Simple
Moving
Average
(SMA)
at
$2,344,
fulfilling
the
negative
implications
of
the
Two-Bar
pattern.
At
the
same
time,
the
recovery
after
its
formation
has
partially
invalidated
it
and
suggests
the
price
could
go
higher.

A
break
above
the
high
of
the
pattern
and
Friday’s
peak
at
$2,393
would
provide
strong
bullish
confirmation
of
a
continuation
higher.
This
would
probably
also
unlock
the
next
target
at
the
$2,451
all-time
high. 

The
bearish
Head
&
Shoulders
(H&S)
topping
pattern
that
formed
from
April
to
June
has
been
invalidated
by
the
recent
recovery.
However,
there
is
still
a
chance

albeit
much
reduced
– that
a
more
complex
topping
pattern
may
have
formed
instead. 

If
a
complex
pattern
has
formed
in
place
of
the
H&S,
and
the
price
breaks
below
the
pattern’s
neckline
at
$2,279,
a
reversal
lower
may
still
be
possible
with
a
conservative
target
at
$2,171,
the
0.618
ratio
of
the
height
of
the
pattern
extrapolated
lower. 

The
trend
is
now
sideways
in
both
the
short
and
medium
term.
In
the
long
term,
Gold
remains
in
an
uptrend.

Gold
FAQs

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.

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.

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.

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.