Early Wednesday during the European session, the gold price (XAU/USD) is showing slight increases. The growing expectation that the US Federal Reserve (Fed) might start cutting rates as early as September continues to support the non-yielding metal. Political uncertainties in Europe and worldwide may additionally enhance gold price, a classic safe-haven asset.
2. Impact of China’s Gold Price
However, China’s central bank pausing gold purchases for the second consecutive month might prompt traders to reduce bullish bets in the yellow metal. China is the world’s largest gold consumer. Investors will be closely monitoring the second semi-annual testimony by Federal Reserve (Fed) Chair Jerome Powell on Wednesday. Additionally, speeches by Fed officials Michelle Bowman and Austan Goolsbee will be significant. On Thursday, the US Consumer Price Index (CPI) inflation data will be scrutinized for more clarity on the US interest rate path.
3. Gold Market Analysis
Gold prices gain momentum as speculation about Fed rate cuts increases.
China maintained its gold reserves unchanged for the second consecutive month in June, following 18 months of continuous purchases. Official data from China’s central bank show its gold reserves at 2,264 tonnes. Federal Reserve Chair Jerome Powell stated in testimony to Congress that the latest inflation data showed some modest progress. He mentioned that “more good data” could open the door to interest rate cuts. Powell emphasized that monetary policy decisions would be made meeting by meeting. He warned that holding interest rates too high for too long could jeopardize economic growth. Powell further noted that inflation readings from the first three months of this year did not boost Fed officials’ confidence that inflation was under control. Financial markets are now pricing in 74% odds of a Fed rate cut in September, up from 71% last Friday, according to CME FedWatch tool data.
4. Technical Analysis
Gold prices remain bullish over the long term.
Gold trades stronger following a break above the descending channel. The metal maintains its uptrend above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands in the bullish zone around 55.0. The crucial resistance level for gold will emerge at the $2,400 psychological level. The next hurdle is seen at $2,432, a high of April 12. Sustained trading above this level could set XAU/USD for a potential retest of the all-time high of $2,450. Conversely, trading below $2,340, the former resistance level, could attract enough bearish demand to head to $2,318, a low of July 1. The next level to watch is $2,274, the 100-day EMA.
5. US Dollar Performance
The price of the US Dollar over the past week
The table below shows the percentage change of the US Dollar (USD) against listed major currencies in the last seven days. The US Dollar was strongest against the Japanese Yen. The heat map illustrates percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed will represent EUR (base)/JPY (quote).
Conclusion
The gold price continues to show positive momentum supported by expectations of Fed rate cuts and global political uncertainties. However, China’s pause in gold purchases poses a potential risk to bullish sentiment. Investors should closely monitor upcoming Fed communications and US inflation data for further market direction.
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