Gold Prices Climb on Weaker USD and Anticipated Fed Rate Cut

Gold Price Dynamics Amid Weaker US Dollar and Fed Rate Cut Speculations

Market Reactions and Key Drivers

The gold price (XAU/USD) is gaining momentum amid a weaker US Dollar (USD) during the early European session. The anticipation of a US Federal Reserve (Fed) interest rate cut in September, following softer US employment data, is driving traders' bets. This is further influenced by political uncertainties in France and geopolitical tensions in the Middle East, enhancing gold's appeal as a traditional safe-haven asset.

Impact of Chinese Central Bank's Decision

Gold prices are also impacted by the People's Bank of China's (PBoC) decision not to buy gold for the second consecutive month in June. Official data indicates that China, the world's largest gold consumer, maintained its gold holdings at 72.8 million ounces, valued at approximately $170 billion. This pause in gold purchases by China, coupled with profit-taking and strong equities, has exerted downward pressure on gold prices.

Market Speculations on Fed Rate Cuts

Financial markets have priced in a nearly 76% chance of a Fed rate cut in September, up from 71% the previous Friday, according to the CME FedWatch tool. The upcoming US Consumer Price Index (CPI) inflation data is expected to ease to 3.1% year-on-year (YoY) in June from 3.3% in May, while core inflation is estimated to remain steady at 3.4% YoY. These expectations, along with the Fed Chair Jerome Powell's semi-annual Congressional testimony, will be closely monitored by gold traders.

Technical Analysis and Price Levels

From a technical analysis perspective, gold prices maintain a bullish trend above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) remains in the bullish zone above the 50-midline, indicating strong support levels. The $2,400 psychological level acts as immediate resistance, with further upside barriers at $2,432 and $2,450, the all-time high. On the downside, the first target is $2,340, followed by the 100-day EMA at $2,273.

Influence of US Dollar and Bond Yields

The US Dollar (USD) is under pressure due to bets on a Fed rate cut. The US dollar index (DXY) stabilized below 105 after losing nearly 1% last week. Additionally, the US 10-year Treasury yield held its recent lows at around 4.3%, reflecting cautious expectations for Fed monetary policy. Safe-haven demand for US bonds and weak US economic data have reinforced this outlook.

Market Sentiment and Global Geopolitical Concerns

Gold markets are influenced by geopolitical tensions and global economic conditions. For instance, France's left-wing New Popular Front coalition's unexpected political developments have added to market volatility. Moreover, weak US labor market data, with the unemployment rate rising to a two-and-a-half-year high of 4.1% in June, have raised expectations of a Fed rate cut.

Gold's Technical Outlook

Despite recent selling pressure, gold prices are still on an upward trajectory. The selling was supported by China's announcement to stop buying gold, but other factors such as increasing global geopolitical tensions and the halt in the gains of the US dollar provide stimulus. Gold prices are expected to rebound upwards, with key support levels at $2,348 and $2,330 per ounce. Resistance levels to watch are $2,385 and the psychological resistance of $2,400 per ounce.

Global Economic Data and Influences

Macro data releases, such as US CPI and PPI, along with Fed Chairman Powell's testimony, will play a significant role in shaping market expectations. Additionally, global economic conditions, including China's crude oil demand and Germany's trade data, influence market sentiment. Weakness in crude demand in China and higher-than-expected Russian crude output are bearish for oil prices, indirectly impacting gold markets.

Conclusion

In conclusion, the gold market is navigating a complex landscape of weaker US Dollar, Fed rate cut speculations, geopolitical tensions, and economic data releases. Technical analysis suggests that gold prices maintain a bullish bias in the longer term, with key support and resistance levels providing critical guidance. Investors and traders will closely monitor upcoming economic data and geopolitical developments to assess the future direction of gold prices.

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