The price of gold remains negative below $2,430, with no continuation in the risk-off
• September Fed rate drop bets should restrict the USD and
assist limit losses for the XAU/USD;
• Gold price corrects further from the record high amid some
follow-through USD purchasing.
Prospects for the appearance of dip-buying near $2,400 are
supported by the technical setting.
For the third day in a row, the gold price (XAU/USD) is
still seeing selling pressure and is falling away from the all-time high
reached earlier this week. The only factor driving the decline is the US
Dollar's (USD) continued recovery from Thursday's nearly three-month low, which
is expected to weaken demand for commodities denominated in USD.
The US Dollar (USD) builds on the previous day's solid
recovery from over a four-month trough, led by the post-ECB slump in the shared
currency, and is seen as a key factor exerting downward pressure on the
commodity. The downfall could further be attributed to some profit-taking,
especially after the recent rally of over 6.5% since the beginning of this
month. geopolitical tensions and central bank demand should help limit the
downside for the precious metal.
Daily Digest Market Movers: Gold price bears seem non
committed amid Fed rate cut bets, risk-off mood
• The US
Dollar builds on the previous day's strong recovery from its lowest level since
March 21 and drags the Gold price lower for the third successive day on Friday.
• The US
Bureau of Labor Statistics (BLS) reported on Thursday that the number of
Americans filing for unemployment benefits in the week ending July 13 rose to
243K.
• Additional
details of the report revealed that the 4-week moving average swelled to the
highest level in more than 2-1/2 years, pointing to a loosening labor market.
• This,
along with ebbing inflation, paves the way for an imminent start of the Federal
Reserve's rate-cutting cycle, offsetting the upbeat US manufacturing data.
• In fact,
the Philadelphia Fed Manufacturing Index remained in positive territory for a
sixth straight month and rose to 13.9 from 1.3 in the previous month.
• Nevertheless,
the CME Group's FedWatch Tool indicates that markets are pricing in a 100%
chance of a rate-cut in September and an additional two cuts by year-end.
• Meanwhile,
former President Donald Trump said that Taiwan should pay the US for defense,
raising doubts over the US commitment to defend Taiwan in the event of an
attack by China.
• This
comes on top of geopolitical tensions stemming from conflicts in the Middle
East and the protracted Russia-Ukraine war, which should lend support to the
XAU/USD.
Technical Analysis: Gold price technical setup favors bulls
and supports prospects for the emergence of dip-buying
From a technical perspective, any subsequent fall is likely
to find decent support near the $2,413-2,412 area ahead of the $2,400
round-figure mark. This is followed by the $2,390-2,385 horizontal resistance
breakpoint, now turned support, which, if broken decisively, might prompt some
technical selling. The Gold price might then accelerate the downfall toward
testing the 50-day Simple Moving Average (SMA) support, currently pegged near
the $2,359-2,358 region. Sustained weakness below the latter could expose the
100-day SMA near the $2,311 zone, with some intermediate support near the
$2,330-2,328 region.
On the flip side, the Asian session high, around the $2,445
area, now seems to act as an immediate hurdle, above which the Gold price could
climb to the $2,469-2,470 region. Given that oscillators on the daily chart are
still holding comfortably in positive territory, bulls might then aim to retest
the all-time peak, near the $2,483-2,484 region, and conquer the $2,500
psychological mark.
RISK SENTIMENT FAQS
What do the terms'risk-on' and 'risk-off' mean when
referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms
“risk-on” and “risk off'' refer to the level of risk that investors are willing
to stomach during the period referenced. In a “risk-on” market, investors are
optimistic about the future and more willing to buy risky assets. In a
“risk-off” market investors start to ‘play it safe’ because they are worried
about the future, and therefore buy less risky assets that are more certain of
bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk
sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will
rise, most commodities – except Gold – will also gain in value, since they
benefit from a positive growth outlook. The currencies of nations that are
heavy commodity exporters strengthen because of increased demand, and
Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major
government Bonds – Gold shines, and safe-haven currencies such as the Japanese
Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is 'risk-on'?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the
New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South
African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is
because the economies of these currencies are heavily reliant on commodity
exports for growth, and commodities tend to rise in price during risk-on
periods. This is because investors foresee greater demand for raw materials in
the future due to heightened economic activity.
Which currencies strengthen when sentiment is 'risk-off'?
The major currencies that tend to rise during periods of
“risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc
(CHF). The US Dollar, because it is the world’s reserve currency, and because
in times of crisis investors buy US government debt, which is seen as safe
because the largest economy in the world is unlikely to default. The Yen, from
increased demand for Japanese government bonds, because a high proportion are
held by domestic investors who are unlikely to dump them – even in a crisis.
The Swiss Franc, because strict Swiss banking laws offer investors enhanced
capital protection.
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