- Gold price edges lower on Wednesday amid a modest USD recovery from a multi-year low.
- A positive risk tone further fails to assist the commodity to build on its two-day-old uptrend.
- Fed rate cut bets should cap the USD and support the XAU/USD pair amid trade uncertainties.
Gold price (XAU/USD) trades with a mild negative bias during the early European session on Wednesday and for now, seems to have snapped a two-day winning streak to a one-week top touched the previous day. The US Dollar (USD) ticks higher and moves away from a three-and-a-half-year low, which, in turn, undermines the commodity. Moreover, a generally positive risk tone is seen as another factor denting demand for the safe-haven precious metal.
However, expectations that the US Federal Reserve (Fed) will resume its rate-cutting cycle in the near future and concerns about the fiscal implications of US President Donald Trump’s sweeping tax and spending cut bill should cap the USD. Furthermore, the uncertainty over Trump’s erratic trade policies should contribute to limiting losses for the Gold price. Traders might also opt to wait on the sidelines ahead of the release of the US jobs report on Thursday.
Daily Digest Market Movers: Gold price is pressured by modest USD recovery
- The US Dollar stages a modest bounce from over a three-and-a-half-year low touched on Tuesday and fails to assist the Gold price to build on a two-day-old recovery from a nearly one-month low touched earlier this week.
- Comments from Federal Reserve Governor Michelle Bowman and fellow Governor Christopher Waller suggested that the US central bank could consider cutting interest rates as early as the July monetary policy meeting.
- Meanwhile, Fed Chair Jerome Powell said on Tuesday that the US central bank would have eased monetary policy by now if not for the highly uncertain economic path created by US President Donald Trump’s tariff policies.
- When asked if July would be too soon for markets to expect a rate cut, Powell answered that it’s going to depend on the data. Nevertheless, traders are pricing in over a 20% chance that the Fed will cut rates at the July meeting.
- More significantly, there is a nearly 75% probability of a 25 basis point rate reduction by the Fed at the September monetary policy meeting. This caps any further USD recovery and supports the non-yielding yellow metal.
- On the economic data front, the Institute of Supply Management (ISM) reported on Tuesday that economic activity in the US manufacturing sector contracted for the fourth consecutive month, though at a slower pace in June.
- Separately, the Job Openings and Labor Turnover Survey (JOLTS) revealed that the number of job openings stood at 7.769 million on the last business day of May, up from 7.395 million in April and 7.3 million anticipated.
- Wednesday’s US economic docket features the release of the ADP report on private-sector employment, which might influence the USD and the XAU/USD pair ahead of the official Nonfarm Payrolls (NFP) report on Friday.
- Trump threatened to impose higher tariffs on Japanese imports over the latter’s alleged unwillingness to buy American-grown rice. This comes ahead of the July 9 deadline for Trump’s reciprocal tariffs and fuels uncertainty.
Gold price could attract dip-buyers at lower levels; $3,329-3,328 holds the key for bulls
Bulls might now wait for a move beyond the overnight swing high, around the $3,358 region, before placing fresh bets around the Gold price. The subsequent move up should allow the commodity to reclaim the $3,400 round-figure mark. A sustained strength beyond the latter would negate any near-term negative outlook and shift the bias in favor of the XAU/USD bulls.
On the flip side, weakness below the $3,329-3,328 region (Asian session low) could find support near the $3,300 mark. This is followed by the $3,277-3,276 horizontal zone and the weekly trough, around the $3,246-3,245 region. A convincing break below the latter would make the Gold price vulnerable to accelerate the fall to the $3,210-$3,200 support en route to the $3,175 area.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.