- Gold price rebounds above the 20-day EMA amid accelerating Fed interest rate cut bets.
- Soft US NFP data has weighed heavily on US Treasury yields.
- Gold price oscillates inside the Symmetrical Triangle formation.
Gold price (XAU/USD) clings to gains near Friday’s high around $3,350 during the European trading session on Monday. The precious metal trades firmly as cooling labor market conditions have forced traders to raise bets supporting interest rate cuts by the Federal Reserve (Fed) in the September meeting.
Lower interest rates by the Fed bode well for non-yielding assets, such as Gold. Meanwhile, 10-year US Treasury yields trade vulnerably near almost three-month low around 4.20%.
The US NFP report showed on Friday that the economy added 73K fresh workers, significantly lower than estimates of 110K. Also, employment figures for June were revised sharply lower to 14K from 147K. The Unemployment Rate rose to 4.2%, as expected, from the prior release of 4.1%.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates in the September meeting has increased to 80.8% from 41.2% seen on Thursday, a day before the release of the NFP data.
Before the US employment data, traders pared Fed’s interest rate cut bets for the September meeting significantly as Chairman Jerome Powell said in the press conference on Wednesday that there is no rush for interest rate cuts as the impact of tariffs announced by President Donald Trump has started feeding into the economy.
Gold technical analysis
Gold price bounces back above the 20-day Exponential Moving Average (EMA), which trades around $3,323. The overall trend of the Gold price remains sideways as it trades inside the Symmetrical Triangle formation, which indicates indecisiveness among market participants.
The 14-day Relative Strength Index (RSI) wobbles inside the 40.00-60.00, indicating a sharp volatility contraction.
Looking down, the Gold price would fall towards the round-level support of $3,200 and the May 15 low at $3,121, if it breaks below the May 29 low of $3,245
Alternatively, the Gold price will enter uncharted territory if it breaks above the psychological level of $3,500 decisively. Potential resistances would be $3,550 and $3,600.
Gold daily chart
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.