Gold Maintains $1,960 Position; Eyes on FOMC Impact in SA

  • The gold price is currently holding above the $1,960 level, with a minor decrease of 0.10% as market participants keenly await the Federal Open Market Committee's (FOMC) decision, which could influence the future trajectory of the gold price
  • Strong macro data from the US, pointing to a resilient economy, has given the US Dollar a modest boost, negatively affecting the gold price. However, a combination of looming global recession risks and geopolitical issues is limiting the gold price losses.
  • From a technical perspective, the immediate downside of the gold price might be protected by the overnight swing low of around the $1,952-$1,951 region. However, a decisive break could indicate a shift from the recent upward trajectory and introduce the potential for further losses.

In the wake of today’s Asian trading session, the price of gold edges slightly lower, shedding part of its recovery gains from a more than a week-long low, which stood in the $1,951-$1,952 region. The precious metal, identified as XAU/USD in financial markets, holds its position just above $1,960, experiencing a mild 0.10% dip for the day. Market participants, particularly those in South Africa, are holding their breath for the outcome of the Federal Open Market Committee (FOMC) meeting, a key determinant for their future market strategies.

The upcoming FOMC decision is garnering significant attention. The Federal Reserve, set to announce its verdict this Wednesday, is largely predicted to elevate interest rates by 25 basis points. Additionally, the markets are speculating about the possible culmination of the Fed’s ongoing monetary tightening phase, yet there’s some scepticism regarding the central bank’s commitment to a dovish outlook. As such, investors’ eyes are fixated on the impending monetary policy statement and Fed Chair Jerome Powell’s words during the post-meeting press conference. His comments will be meticulously analysed for indications of the future rate hike trajectory. The given outlook will notably influence the near-term dynamics of the US Dollar, thereby defining the immediate trajectory for gold, a non-yielding asset.

Meanwhile, robust macroeconomic data from the United States released on Tuesday, indicative of a resilient economy, is buoying the US dollar, maintaining its position just shy of a two-week high. The Conference Board’s survey exhibited a leap in US consumer confidence to a two-year peak in July, boosted by a consistently solid labour market and diminishing inflationary pressures. This optimism, hinting at the avoidance of a recession this year, acts as a tailwind for the Greenback. Concurrently, expectations for additional stimulus from China, coupled with the prevailing risk-on sentiment, apply downward pressure on safe-haven gold, contributing to its modest intraday dip.

Nevertheless, a mixture of elements curtails the losses for XAU/USD. Potential recession threats, escalating US-China tensions – being the globe’s two largest economies – and geopolitical risks serve to limit the decline for this valuable metal. Fears of a more profound global economic slowdown reignited on Monday, following July’s disappointing Purchasing Managers’ Index (PMI) results. The data indicated a widespread decrease in business activity across the manufacturing and services sectors in the Euro Zone, the UK, and the US. Thus, traders might be reluctant to place aggressive bearish bets on gold prices as we approach the key central bank event, urging caution before positioning for the continuation of the recent pullback from a two-month high.

Examining the situation from a technical viewpoint, the immediate downside should be guarded by the overnight swing low, which resides around the $1,952-$1,951 region, followed by the $1,946-$1,945 zone. Any substantial selling, however, could suggest the recent upward movement seen since the month’s inception may have exhausted its course, opening doors for deeper losses.

On the contrary, the $1,977-$1,978 area might present an immediate hurdle. Above this level, we find last week’s monthly peak around the $1,987-$1,988 region, beyond which gold prices could endeavour to surpass the $2,000 psychological mark, extending gains towards the significant resistance near the $2,010-$2,012 supply zone.

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