Gold price finds support above $1,920 as the US dollar corrects. Investors await US inflation data to determine the next move. Some Federal Reserve (Fed) members believe interest rates have peaked.
The precious metal, Gold (XAU/USD), is benefiting from the correction in the US Dollar driven by positive market sentiment. The bounce in Gold comes as Fed officials anticipate that interest rates have reached their peak for now. Additionally, there is speculation that the Fed may consider cutting rates next year if inflation continues to slow and job hiring slows down further.
Investors are eagerly waiting for US Consumer Price Index (CPI) data on Thursday to gauge the monetary policy stance for September. After a period of weakness, there is an expectation for a rebound in headline CPI, especially as oil prices recover and boost gasoline prices. Although US hiring slowed in July, the unemployment rate remains near record lows. The inflation data for July will play a crucial role in the upcoming interest rate decision.
Gold has found temporary support at $1,920 as the US dollar faces a sell-off ahead of the release of US inflation data. The Dollar Index has been affected by the Federal Reserve’s neutral interest rate stance. Some Fed officials, including Philadelphia Fed President Patrick Harker and New York Fed President John Williams, believe that interest rates have already peaked. This sentiment has caused the US Dollar Index to correct sharply and approach 102.40. Market sentiment is also turning positive, supported by stronger than expected exchange rate fixing by the People’s Bank of China.
The US inflation data, set to be released on Thursday, will provide further clarity on the state of the economy. Estimates suggest that the headline CPI will rebound to 3.3% in July, up from 3.0% in June. However, there may be a marginal slowdown in core inflation. The solid recovery in world oil prices is expected to support the rise in headline CPI. If inflationary pressures continue to rise, it could lead to the Fed considering further interest rate hikes.
In other news, the US government plans to ban investment in Chinese artificial intelligence (AI) companies. The focus will be on companies that generate more than 50% of their profits from the quantum computing and AI sectors. This move comes as the National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose to 91.1, the highest since November 2022, due to eased concerns about inflation expectations. The US Census Bureau also reported a deficit in the trade balance for goods and services at its lowest level in three months, at $65.5 billion.
From a technical analysis perspective, Gold price has found a short-term cushion after testing the crucial support at $1,920. However, the precious metal is still considered vulnerable following a bearish crossover of the 20 and 50 day EMAs. The 200 EMA at $1,907 is expected to provide support for Gold in the coming sessions.
Lastly, frequently asked questions about interest rates were addressed. Interest rates set by central banks have a significant impact on financial institutions, borrowers, savers, and depositors. Higher interest rates can strengthen a country’s currency by attracting global investors. In general, higher interest rates can influence the price of Gold as it increases the opportunity cost of holding Gold instead of investing in interest-bearing assets. The Fed Funds Rate, which is the overnight rate at which US banks lend to each other, is closely monitored by market participants to anticipate future Federal Reserve monetary policy decisions.