- Gold drifts lower for the second straight day as reduced Fed rate cut bets underpin the USD.
- The cautious market mood does little to lend any support to the safe-haven precious metal.
- Traders keenly await Fed Chair Powell’s speech for rate-cut cues and a meaningful impetus.
Gold (XAU/USD) extends the steady intraday descent through the early European session on Friday and retests the overnight swing low, around the $3,326-3,325 region in the last hour. The US Dollar (USD) prolongs its weekly uptrend and climbs to its highest level since August 5 amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, is seen as a key factor driving flows away from the non-yielding yellow metal.
The USD bulls, however, opt to wait for Fed Chair Jerome Powell’s speech for more cues about the policy outlook and before placing fresh bets. This, however, does little to lend any support to the Gold price. Even the cautious market mood fails to revive demand for the safe-haven commodity. This, in turn, favors the XAU/USD bears, though a sustained break below the 100-day Simple Moving Average (SMA) is needed before positioning for any further losses.
Daily Digest Market Movers: Gold price bears retain control amid sustained USD buying ahead of Powell
- Traders pared their bets for a more aggressive policy easing by the US Federal Reserve following last week’s release of the hot US Producer Price Index (PPI), which pointed to signs of a gain of momentum in inflationary pressures. Moreover, Kansas City Fed president Jeffrey Schmid said on Thursday, described the central bank’s current monetary policy stance as “modestly restrictive” and sounded cautious about a September rate cut.
- Separately, Cleveland Fed President Beth Hammack said that it is important to maintain a modestly restrictive policy to lower inflation. The biggest concern is that inflation is too high and has been trending in the wrong direction, Hammack added further. This assists the US Dollar in preserving its weekly gains to the highest level since August 6 and exerts some downward pressure on the non-yielding Gold for the second straight day on Friday.
- Meanwhile, Chicago Fed President Austan Goolsbee said in a Bloomberg TV interview that the recent inflation data gives him some pause when it comes to cutting interest rates. Goolsbee, however, indicated that the September policy meeting is live for potential monetary policy action. Furthermore, Boston President Susan Collins signaled openness to a rate cut as soon as next month due to risks of weaker employment and higher tariffs.
- According to the CME Group’s FedWatch Tool, traders are pricing in a 75% chance that the Fed will lower borrowing costs in September and expect at least two 25 basis points rate cuts by the year-end. The bets were reaffirmed by Thursday’s data, which showed that Jobless Claims rose by the most in about three months, and people collecting unemployment relief in the prior week climbed to the highest level in nearly four years.
- Hence, investors will closely scrutinize Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium for fresh cues about the rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the non-yielding yellow metal.
Gold bearish technical setup backs the case for a breakdown below 100-day SMA pivotal support
The overnight swing low, around the $3,325 region, now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near the $3,316-3,315 zone. Some follow-through selling below the $3,311 area, or a three-week low touched on Wednesday, will be seen as a key trigger for the XAU/USD bears. The subsequent fall could drag the Gold price below the $3,300 mark, towards the $3,270-3,265 strong horizontal support amid slightly negative oscillators on the daily chart. The latter represents the lower boundary of a three-month-old trading range, which, if broken, will suggest that the commodity has topped out and pave the way for a further depreciating move.
On the flip side, the $3,348-3,350 region now seems to have emerged as an immediate strong barrier, above which a fresh bout of a short-covering move could lift the Gold price to the $3,375 resistance zone. The momentum could extend further towards the $3,400 mark before the XAU/USD pair aims to challenge the $3,434-3,435 heavy supply zone, marking the top boundary of a three-month-old trading range.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/gold-slips-as-reduced-fed-rate-cut-bets-underpin-usd-ahead-of-powells-jackson-hole-speech-202508220359
