Gold Daily | Gold Nears Record High on Weak Dollar, Fed Rate Cut Hopes Amid Key US Data Awaited
Thursday, Aug 29, 2024 8:00 am ET
International gold prices saw a slight increase on Thursday, with the price recovering to near $2,520, close to its all-time high. This rise is mainly attributed to the weakening of the US dollar and hopes for a Federal Reserve rate cut. Markets are also focusing on key upcoming US inflation data. At the time of writing, spot gold had risen 0.6% to around $2,520. The price of gold hit an all-time high of $2,531.60 on August 20 and has risen nearly 22% year-to-date. The dollar dropped by 0.1%, making gold more attractive to holders of other currencies. The benchmark 10-year US Treasury yield also dipped slightly. Capital.com financial market analyst Kyle Rodda noted that while gold has shown strong long-term performance, there could be short-term corrections, especially if any data weakens rate cut expectations. Gold, being a non-yielding asset, is more attractive in a low interest rate environment. Market participants are awaiting US initial jobless claims and GDP data, with the Personal Consumption Expenditures (PCE) data scheduled for release on Friday, which may further provide insights into future rate cuts. According to the CME's FedWatch tool, traders have fully priced in a rate cut next month, with a 65.5% chance of a 25 basis points cut and a 34.5% chance of a 50 basis points cut. Atlanta Fed President Raphael Bostic mentioned on Wednesday that with inflation decreasing and unemployment rising, it might be time to act, although he remains cautious. Forexlive pointed out that gold has been relatively flat this week due to a lack of market catalysts, with price movements confined to a narrow range. The market is awaiting major economic data releases next week, including the ISM Purchasing Managers' Index (PMI) and significant US labor market data, including the Non-Farm Payrolls (NFP) report. It's important to note that the Federal Reserve is currently highly focused on the labor market. As stated by Fed Chair Jerome Powell, they do not want to see any further weakening and will do everything possible to maintain a strong labor market. Hence, the data will determine whether the central bank will proceed with a standard 25 basis points cut in September or opt for a more aggressive 50 basis points cut.
【Technical Analysis】
On the daily chart, we see that due to a lack of market catalysts this week, gold struggled to break the resistance level of $2,531. However, buyers are still in control and are aiming for new historical highs. On the other hand, bears are hoping to see the price fall below $2,480 to shift the bias towards a more bearish stance and aim for the $2,360 level. On the 4-hour chart, the price has broken the trend line defining the upward momentum in this time frame. This is another sign of momentum loss and overall consolidation. Currently, gold is trapped within the range between $2,480 support and $2,531 resistance. Buyers may look to go long near the support level or wait for a price breakout above the resistance. Sellers may go short near the resistance or wait for a price break below the support. On the 1-hour chart, the range-bound price action is clearer. Unless the US initial jobless claims significantly jump above 260K, no breakthrough is expected today.
【Market Sentiment and Economic Background】
Investors are increasingly expecting the Federal Reserve to cut rates in the coming months. The futures market has priced in a 25 basis points rate cut for September with a further 36.5% probability of a larger cut. Fed Chair Jerome Powell's recent speech in Jackson Hole hinted that the era of rate hikes might be ending. Lower rates would decrease the opportunity cost of holding non-yield assets like gold, thereby stimulating demand. Despite the gold price being influenced by geopolitical tensions, particularly in the Middle East, the focus remains on the broader impacts on global markets. Increased global political instability often drives investors towards safe-haven assets like gold and silver. The demand for the dollar is relatively moderate, having little impact on gold prices. Since gold is priced in dollars, a weaker dollar makes gold cheaper for holders of other currencies, thereby increasing demand for gold. Looking ahead, the US second-quarter GDP data to be released on Thursday is expected to grow by 2.8%, providing important insights into the health of the US economy, which in turn will affect expectations for Federal Reserve monetary policy. On Friday, the July PCE price index will be released, expected to rise by 2.6% year-on-year, providing a critical inflation indicator that is closely watched. Any surprises could lead to significant changes in gold and silver prices as investors adjust their expectations for Federal Reserve actions.
【Analyst Opinions】
FXEmpire analyst Arslan Ali noted that gold is currently priced at $2,518.68, up 0.51%, showing resilience above the key pivot point of $2,516.55. The 4-hour chart displays a bullish engulfing pattern, indicating a potential for continued upward movement. Immediate resistance is at $2,529.03, with other resistance levels at $2,541.48 and $2,555.85. The 50-day moving average is at $2,510.15, supporting sustained buying momentum, while a stronger 200-day moving average is at $2,481.08, reinforcing a long-term bullish outlook. If the price holds above $2,515, the upward trend may continue. Conversely, a drop below this level could lead to a rapid decline, targeting the support area of $2,500.15, with further support at $2,486.23 and $2,470.51.
Noted financial news website FXStreet analyst Dhwani Mehta wrote on Thursday that gold prices rebounded in the early session as the dollar and US Treasury yields retreated but remained within the familiar range for the week. Traders are now focusing on the US GDP revised value and pending home sales data to be released later on Thursday. Mehta pointed out that technically, the path of least resistance for gold prices seems to be upward. Mehta further elaborated that as long as the price remains above the triangle resistance-turned-support level of $2,469 per ounce, gold prices could rise further. The 21-day simple moving average (SMA) near this level makes it a strong support. A few weeks ago, gold prices confirmed a breakout of a symmetrical triangle. Meanwhile, the 14-day Relative Strength Index (RSI) has turned upwards above 50, currently near 62, indicating more room for price increases. Mehta noted that gold buyers need to reclaim the record high of $2,532 per ounce to move towards the next key barrier of $2,550 per ounce. Once the latter is breached, prices could challenge the $2,600 per ounce psychological level, moving towards the triangle target of $2,660 per ounce. On the downside, Mehta added that the initial support area for gold buyers is expected at $2,500 per ounce. If this level is broken, last Friday’s low of $2,485 per ounce will be challenged. If the price continues to fall below $2,