- Gold prices attracted sellers in Asian markets on Tuesday.
- Growing expectations of a U.S. interest rate cut this year and escalating geopolitical conflicts may limit gold’s declines.
- Investors will be closely watching the U.S. central bank’s consumer confidence and home price index data due on Tuesday.
Gold prices (XAU/USD) are trading in negative territory due to a gradual recovery in the US Dollar (USD) on Tuesday. However, Federal Reserve Chairman Jerome Powell’s signal at Jackson Hole that he will start cutting interest rates is likely to support the precious metal. Lower interest rates are generally positive for gold as they reduce the opportunity cost of holding a non-interest-bearing asset. Moreover, rising geopolitical tensions in the Middle East could further boost gold, a traditional safe haven.
The People’s Bank of China (PBOC) stopped buying gold in July, marking the third consecutive month that it has not purchased any gold for reserves. Traders will be watching August’s data closely for fresh stimulus. China is the world’s largest gold producer and consumer, so concerns about a weak Chinese economy and demand for the precious metal could drive gold prices lower.
The Conference Board’s August consumer confidence index and June home price index are due to be released on Tuesday. Later this week, attention will be focused on preliminary second-quarter annualized U.S. gross domestic product (GDP) figures and personal consumption expenditures (PCE) price index data.
Daily Digest Market Trends: Gold prices lose momentum, downside potential limited
- Air Force Chairman CQ Brown, chairman of the Joint Chiefs of Staff, said early Tuesday that concerns about near-term conflict across the Middle East had subsided after Israel and Lebanon’s Hezbollah exchanged fire but failed to escalate further. However, the top U.S. general warned that “Iran remains a significant risk as it considers attacking Israel,” according to Reuters.
- Hamas has rejected Israel’s new conditions in ceasefire talks in Egypt, insisting that Israel should be bound by the terms of the proposal put forward by U.S. President Joe Biden and the UN Security Council, according to local news agency Al Jazeera.
- Federal Reserve President Mary Daly of the Bank of San Francisco said it would be appropriate for the Fed to start cutting interest rates, adding that she doesn’t want to keep monetary policy tight with inflation falling.
- Richmond Fed President Thomas Barkin said the Fed will take a “trial and learn” approach to cutting interest rates.
- “It’s time to adjust policy,” Fed Chairman Jerome Powell said Friday at the Kansas City Fed’s annual economic symposium in Jackson Hole. Powell also said he is confident inflation is on track to reach the Fed’s 2 percent goal.
- U.S. durable goods orders surged 9.9% month-on-month in July after declining 6.9% in June, beating the 4% increase expected. The figure marked the biggest increase since May 2020.
- According to the CME FedWatch tool, the market is fully pricing in a 25 basis points (bps) cut, but the likelihood of further rate cuts has fallen to 30% from 36.5% last Friday.
Technical analysis: The overall bullish trend in gold prices remains strong
Gold prices edged lower on the day. The metal remains below the upper limit of its five-month ascending channel. Nevertheless, a generally bullish outlook prevails as the precious metal is holding firm support above the crucial 100-day exponential moving average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) is pointing to sustained strength as it remains above its mid-line near 92.95.
If gold breaks out of the resistance area and sees a sustained bullish candlestick rise above the all-time high and the upper limit of the trend channel at $2,530-$2,540 zone, XAU/USD could aim for the psychological barrier of $2,600.
On the other hand, continued selling below the Aug. 22 low of $2,470 may attract more technical sellers and gold prices may sink to the next support zone of the Aug. 15 low of $2,432. Key contested levels to watch are the lower boundary of the trend channel and the 100-day EMA at $2,360–2,370.
US Dollar Price for the Last 7 Days
The table below shows the percentage change of the US Dollar (USD) and major listed currencies over the past 7 days: The US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | Australian Dollar | JPY | NZD | Swiss Franc | |
| USD | -0.74% | -1.54% | -1.11% | -0.61% | -1.32% | -1.52% | -1.83% | |
| EUR | 0.73% | -0.80% | -0.38% | 0.10% | -0.56% | -0.80% | -1.09% | |
| GBP | 1.51% | 0.79% | 0.42% | 0.91% | 0.23% | 0.01% | -0.28% | |
| CAD | 1.10% | 0.38% | -0.42% | 0.48% | -0.21% | -0.41% | -0.71% | |
| Australian Dollar | 0.61% | -0.11% | -0.92% | -0.50% | -0.69% | -0.91% | -1.20% | |
| JPY | 1.30% | 0.55% | -0.25% | 0.18% | 0.66% | -0.24% | -9951.16% | |
| NZD | 1.50% | 0.79% | -0.01% | 0.40% | 0.90% | 0.22% | -0.29% | |
| Swiss Franc | 1.80% | 1.08% | 0.27% | 0.70% | 1.19% | 0.51% | 0.29% |
The heat map displays the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Euro from the left column and move it along the horizontal line to Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk Sentiment FAQ
In the world of financial jargon, two terms are widely used: “risk on” and “risk off”, which refer to the level of risk that investors are willing to tolerate during a reference period. In a “risk on” market, investors are optimistic about the future and are more willing to buy riskier assets. In a “risk off” market, investors are worried about the future and start to “play it safe”, buying less risky assets that offer more certain profits, even if they are relatively modest.
Typically during “risk-on” periods, stock markets rise and most commodities other than gold also rise in value as they benefit from a positive growth outlook, currencies of major commodity exporters strengthen due to increased demand and cryptocurrencies rise. In “risk-off” markets, bonds (especially major government bonds) rise, gold shines and safe haven currencies like the Japanese Yen, Swiss Franc and US Dollar all benefit.
Major currencies such as the Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD), Ruble (RUB) and South African Rand (ZAR) all tend to rise in “risk-on” markets. This is because their economies rely heavily on commodity exports for growth, and commodity prices tend to rise during risk-on periods. This is because investors expect stronger economic activity to lead to greater demand for raw materials in the future.
The major currencies that tend to rise during “risk-off” periods are the US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF). The US Dollar is the world’s reserve currency, and US government bonds are considered safe because investors buy them in times of crisis, making it unlikely that the world’s largest economy will default on its debt. The Yen is due to increased demand for Japanese government bonds, which are held at a high rate by domestic investors who are unlikely to sell them even in times of crisis. The Swiss Franc is due to strict Swiss banking laws that provide greater capital protection for investors.
