Gold Price Draws Sellers Amid US Dollar Recovery, but Potential Downside Appears Limited
Wednesday in early European session saw a drop by gold prices. However, falling into the negative zone in Middle East and dovish Fed still underpin bullion prices. They are eagerly awaiting opening remarks from Fed governors Christopher Waller and Raphael Bostic, later in the day for indications of coming monetary policy.
Gold falls amid weak consolidate near $1,920 as USD bounce halts Gold (XAU/USD) resumed to its downward momentum on Wednesday after a failed attempt at rebounding in the last few sessions.
A modest recovery in the USD has been capping gains surrounding gold prices, which move inversely to the strength. While the pullback has been disappointing, increased geopolitical tensions in the Middle East should still provide gold with support as it is often viewed as a safe-haven during times of geopolitical turmoil.
Last week, Jerome Powell, the Chair of US Federal Reserve (Fed), implied wholly new monetary policy approach at Jackson Hole symposium. The call for the Fed to start cutting interest rates came from Powell, who said that “the time has come” after release of today’s rate-policy statement.
This could potentially support gold prices further for a lower UST yield =lower opportunity cost of non- interest bearing assets like Gold. That prospect of peace may act as a supportive factor on gold prices, even if it means that the USD gets stronger.
Wednesday will bring speeches from Fed officials, Christopher Waller and Raphael Bostic that could provide further advice on the direction of US rates into year end. Their remarks may give more context and guide market speculation of Fed policy that could, secondarily affect the price of gold.
The agenda will quickly turn to high-impact economic data points. Preliminary data on GDP Annualized for the Q2were expected to post as -33.0% forecast from New York Session while Prior was $3.5%. This will be followed by the PCE data on Friday. But both data sets are critical as they provide information on the general condition of economy and inflationary tendencies.
However, it could restrain gold prices if the US Dollar receives a boost from better-than-anticipated GDP and Personal Consumption Expenditure readings. Strong economic growth or rising inflation from these key indicators could lead to further strength in the USD, which would likely be bearish for gold prices.
To sum it up, the stronger USD had been depressing gold prices but not by much; ongoing tensions in the Middle East may lend some support. Furthermore, the possibility of lower interest rates as indicated by Fed chair Powell could also support gold prices.
Upcoming economic data will shape market expectations, and further discoveries of positivity surrounding the coronavirus or not could sway how both the USD trades as well as gold prices.
