- Gold holds the previous bounce led by US CPI data early Wednesday.
- The US Dollar hangs near two-week lows amid heightened Fed rate cut expectations and risk rally on global stocks.
- Gold appears vulnerable as the 4H chart portrays a bearish outlook.
Gold is finding it difficult to build on the previous rebound from weekly lows of $3,331 early Wednesday, as $3,350 appears to be a tough nut to crack for buyers.
Gold looks to Fedspeak for fresh impetus
Markets are on a roll higher amid a bunch of positive developments, including the extension of the US-China trade truce, a potential meeting between US President Donald Trump and his Russian counterpart, Vladimir Putin, and heightened bets of a September Federal Reserve (Fed) interest rate cut.
The benign July US Consumer Price Index (CPI) data eased stagflation concerns, stoked by Trump’s tariffs, bolstering dovish Fed expectations and alleviating market pressures.
In the 12 months through July, the CPI rose 2.7%, at the same pace seen in June, missing the 2.8% growth expected.
Monthly CPI and core CPI aligned with estimates in July, advancing by 0.2% and 0.3%, respectively.
Shorter-duration US Treasury bond yields tanked following the US inflation data, pushing up non-yielding Gold at the expense of the US Dollar.
However, in Wednesday’s trading thus far, Gold is facing headwinds from reduced demand for havens as risk flows dominate.
Looking ahead, dovish Fed expectations could keep the downside checked in Gold, with all eyes on Fedspeak, in the absence of top-tier US macro releases.
Meanwhile, hopes of a rebound in Indian jewellery demand in the second half of this year could remain supportive of the bright metal amid sustained China’s central bank buying. India and China are the world’s largest Gold consumers.
Gold price technical analysis: Four-hour chart
The four-hour (4H) chart paints a bearish picture for Gold in the coming sessions, with the Relative Strength Index (RSI) lurking below the midline, currently near 41.50.
Strengthening the downside bias, the 21-4H Simple Moving Average (SMA) is crossing the 50-4H SMA from above to confirm a Bear Cross.
If the 200-4H SMA at $3,346 gives way on a sustained basis, a fresh decline toward the $3,300 round level cannot be ruled out.
Further south, Gold sellers will target the August low of $3,274.
On the other hand, Gold price needs a firm break above the 100-4H SMA at $3,357 to add legs to the previous rebound.
The next bullish target is aligned at the confluence of the 21-4H SMA and the 50-4H SMA at $3,369, above which the $3,400 threshold will be tested.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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