Gold price refreshes weekly top, tests short-term trading range hurdle ahead of US CPI
- Gold price climbs to a fresh weekly top and draws support from a combination of factors.
- The cautious market mood benefits the safe-haven XAU/USD amid a modest USD downtick.
- Traders refrain from placing aggressive bets ahead of the release of the crucial US CPI report.
Gold price (XAU/USD) attracts some buyers for the third straight day on Wednesday and touches a fresh weekly high, around the $2.520-2,521 region during the Asian session. The commodity, however, remains confined in a multi-week-old trading range as traders await the release of the latest US consumer inflation figures due later today. The crucial data will influence market expectations about the size of the rate cut by the Federal Reserve (Fed) at the September 17-18 policy meeting and determine the next leg of a directional move for the non-yielding yellow metal.
In the meantime, the prospects for an imminent start of the Fed's policy easing cycle fail to assist the US Dollar (USD) to build on its positive move witnessed over the past three days and act as a tailwind for the Gold price. Meanwhile, investors turn cautious heading into the key data risk, which is evident from a generally weaker tone around the equity markets. This is seen as another factor lending some support to the safe-haven precious metal. Bullish traders, however, need to wait for strength beyond the $2,525 supply zone before positioning for any further appreciating move.
Daily Digest Market Movers: Gold price traders await US inflation data before positioning for further gains
- Asian stocks were off to a shaky start on Wednesday as investors gear up for the crucial US inflation data, which, in turn, drives some haven flows towards the Gold price.
- The headline US Consumer Price Index (CPI) is expected to have risen 0.2% in August and the yearly rate is seen decelerating from 2.9% to 2.6%, or the lowest since 2021.
- Meanwhile, the core CPI, which excludes volatile food and energy prices, is anticipated to come in at 0.2% and hold steady at a 3.2% YoY rate during the reported month.
- Any further signs of cooling inflation would increase market bets for a more aggressive policy easing by the Federal Reserve and bode well for the non-yielding yellow metal.
- In contrast, the reaction to a stronger CPI print is more likely to be limited as investors seem convinced that the US central bank will start lowering borrowing costs in September.
- According to the CME FedWatch Tool, the markets are currently pricing in a 67% chance of a 25-basis-points rate cut at the next FOMC policy meeting on September 17-18.
- Meanwhile, the first debate between Democratic Vice President Kamala Harris and Republican Presidential candidate Donald Trump did little to impact the market sentiment.
Technical Outlook: Gold price needs to break above a short-term trading range for bulls to regain control
From a technical perspective, any subsequent move up might continue to confront some resistance near the $2,525-2,526 supply zone. The said area marks the top boundary of a multi-week-old trading range and should act as a key pivotal point. Some follow-through buying, leading to a subsequent strength beyond the $2,532 area or the all-time peak, will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, the Gold price might then resume its recent well-established uptrend.
On the flip side, the $2,500 psychological mark now seems to protect the immediate downside ahead of the $2,485 area and the $2,470 horizontal zone. The latter represents the trading range support, which if broken decisively might prompt some technical selling and pave the way for deeper losses. The Gold price might then accelerate the fall towards the 50-day Simple Moving Average (SMA) support, currently pegged near the $2,450-2,449 area, before eventually dropping to sub-$2,400 levels, or the 100-day SMA.
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.