Gold Prices Struggle to Gain Momentum as Traders Anticipate New Market Catalysts
Gold prices (XAU/USD) entered the negative zone on Tuesday with a decent consolidation in the US Dollar, which has extended earlier gains.
The fall in the gold prices is a direct cause of an inverse movement between the US Dollar and Gold which basically means that whenever there will be strong gains expected for dollar, it causes weaker trend for gold price making in costlier to holders who are not holding USD as currency.
Gold is, however, still supported longer term by the prospect for changes in US monetary policy. Jackson Hole Symposium, shown in the US: Fed Chair Jerome Powell said: “We may not cut down to near zero for some time. Given that lower interest rates are often good for gold prices, this signal is a big one.
All these things said regarding the international correlations, aside from correlation being a backward-looking factor for which we may constitute any reasoning depending on our bias — there are local factors when interest rates drop down it makes this yellow metal more remunerative to keep.
The climate of growing geopolitical tensions, especially in the Middle East, could provide additional cushion for gold prices. As a store of value, gold is seen as the ultimate safe-haven asset typically during periods where political or economic instability can lead investors en masse to seek refuge in it.
Weakening vibes from Middle East the escalating tensions in that part of world might drive higher gold demand, especially among those who are trying to flee away a potential risk on other markets.
Its also key to note that events in China could keep gold prices on their toes. In July, for the third month on a row, The People’s Bank of China (PBOC) stopped buying gold. This is of particular importance since China happens to be the single largest world producer and consumer of gold.
Ongoing fears of continued slow economic growth in China (and its possible negative affects on demand for the precious metals), may keep a lid on gold. There is very little in the way of China buying Q214 Gold (it seems) so when that August unearths, I look forward to seeing any potential change.
Apart from these, various US economic data are due to release and that is something going to impact the gold market.
Tuesday will see the release of US Conference Board Consumer Confidence Index for August and Housing Price Index for June. Looking further down the week, market participants will be focusing on preliminary US GDP and PCE Price Index
Q2. This information is important because it sheds light on the health of these US marketplace and inflationary pressures that could ultimately have an effect on Fed monetary policy, which will affect gold prices.
In short, gold may lose its charm as profit-taking takes place to support the USD rebound for a while but we believe falling US rates and increasing geopolitical risks should cap downside risk in the precious metal.
On the other hand, potential for a negative turn in China’s economic prospects and what it could mean to gold demand may cap the gains. The forthcoming US economic data would also be important for directional moves in gold.
