Gold prices are exhibiting a bullish momentum as they maintain their position near a two-week high. This positive trend is largely driven by growing expectations of interest rate cuts by the Federal Reserve later this year. During the Asian session on Thursday, the gold price (XAU/USD) demonstrated a mild positive bias, remaining below the nearly two-week high reached the previous day.
Key Takeaways
Rising Expectations for Fed Rate Cuts:
Softer US economic data has fueled market expectations for the Federal Reserve to begin its rate-cutting cycle later this year.
Geopolitical and Economic Influences:
Despite a positive risk tone in global equity markets, geopolitical uncertainties and softer US macroeconomic indicators are keeping the bullish momentum for gold intact.
Technical Bullish Signals for Gold:
The recent breakout above the 50-day Simple Moving Average and positive daily chart oscillators suggest a bullish outlook for gold, with potential to reclaim the $2,400 mark and challenge the all-time peak of $2,450.
Geopolitical and Economic Factors Influencing Gold Bullish Momentum
The underlying strong bullish sentiment in global equity markets is acting as a headwind for the safe-haven precious metal amid relatively thin liquidity due to the Independence Day holiday in the US. Additionally, traders are cautious, preferring to wait for the release of the closely-watched US Nonfarm Payrolls (NFP) report on Friday before making significant moves.
The downside for gold prices appears to be cushioned by firming expectations that the Federal Reserve will initiate its rate-cutting cycle later this year. This outlook was reaffirmed by softer US macroeconomic data released on Wednesday, which pointed to signs of weakness in the labor market and a softening economy. Furthermore, the minutes of the last FOMC meeting revealed that the majority of policymakers noted that US economic growth is gradually cooling.
Impact of US Economic Data on Gold Prices
The recent US economic data played a significant role in shaping market expectations. The Automatic Data Processing (ADP) report indicated that private-sector employment in the US rose by 150,000 in June, which was below the expected 160,000. Additionally, the number of Americans applying for unemployment benefits rose to a 2-1/2-year high last week, signaling easing labor market conditions. The Institute for Supply Management’s (ISM) Services PMI fell to 48.8 in June, marking its lowest level since May 2020 and missing consensus estimates.
These data points suggest a loss of momentum in the US economy at the end of the second quarter, reaffirming expectations that the Fed will lower borrowing costs in September and possibly cut rates again in December. The US Treasury bond yields slumped for the second successive day on Wednesday, which undermined the US Dollar and supported the non-yielding yellow metal.
Technical Analysis: Gold Price Outlook
From a technical perspective, the recent breakout through the 50-day Simple Moving Average (SMA), along with positive traction in daily chart oscillators, favors bullish traders. If there is follow-through buying and sustained strength beyond the $2,365 area, the constructive outlook will be reaffirmed, setting the stage for a move towards reclaiming the $2,400 mark. The gold price might then extend the positive momentum and aim to challenge the all-time peak around the $2,450 zone touched in May.
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