- Despite falling US bond yields and rising geopolitical risks, gold prices fell for the second day in a row, falling 0.6%.
- Fed Chairman Jerome Powell hinted at two more 25bps interest rate cuts in 2024, leading to a rally in the US dollar index and weakening gold.
- Despite the recent decline, gold continued to rise over 5.40% in September, marking its best monthly performance since March 2024.
Gold prices fell for the second day in a row as the month-end trend favored the US dollar despite a drop in US Treasury yields. Nevertheless, gold bullion is set to post a monthly gain of more than 5.40% in September, the best month since March 2024, when bullion prices rose more than 9%. XAU/USD is down over 0.6% and trading at $2,639.
Wall Street trading was mixed as Federal Reserve Chairman Jerome Powell speaks at NABE's 66th Annual Meeting. Chairman Powell dismissed the possibility of a 50 basis point (bp) rate cut at either of the central bank's two remaining policy meetings. Powell said if the economy progresses as expected, there will be two more 25bps rate cuts left in 2024.
The greenback, as measured by the US dollar index (DXY), rose 0.15% to 100.56, a headwind for non-yielding metals. Looking at light economic trends in the United States, the Chicago Public Activity Index, known as the Chicago PMI, improved for the third consecutive month but remains in contraction territory.
Geopolitical tensions remain high following Israel's attack on Hezbollah's headquarters in Lebanon, killing its leader. Analysts say that while further gains in gold prices are guaranteed, bullion has failed to gain traction.
On the other hand, China's economy remains sluggish, leading to opposition from the government. The People's Bank of China (People's Bank of China) has introduced additional economic stimulus, which has triggered a flow of funds into surging stock markets.
Daily Digest Market Trends: Gold prices fall as Powell casts shadow over data
- The Chicago Fed National Activity Index (also known as Chicago PMI) improved for the third consecutive month, rising to 46.6, beating both expectations and August data.
- The latest Personal Consumption Expenditures (PCE) Price Index report was mixed. Headline inflation rose 2.2% year-on-year in August, down from 2.5% and slightly below consensus expectations.
- Conversely, core PCE last week increased modestly, as expected, from 2.6% year-on-year to 2.7% over the same period.
- Market participants raised the probability of a 25bp rate cut to 56.4% from 46.7% previously. According to the CME FedWatch tool, the probability of a deep 50 basis point cut is currently 43.6%.
XAU/USD Technical Analysis: Gold Price Falls, Staying Around $2,630
Gold is down more than 2% after hitting a record high of $2,685, with XAU/USD losses likely to widen towards $2,600. Short-term momentum favors the bears, but gold remains bullish as the Relative Strength Index (RSI) is trending lower.
Therefore, traders should be aware of this and take advantage of short-term moves, but they should also be aware that the bulls are still in control.
Once XAU/USD falls below $2,650, it opens the door to a test of the September 18 daily high of $2,600. Once abandoned, the next support is the September 18 low of $2,546, followed by the 50-day simple moving average (SMA) of $2,503.
Conversely, if XAU/USD were to extend its rally above $2,650, the current year-to-date peak of $2,685 would be exposed, followed by the $2,700 mark. Next is the $2,750 level and then $2,800.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
