The Gold Price (XAU/USD) remains stagnant around the $1,930 mark in the early hours of the European trading session this Wednesday. This lack of movement is attributed to a weaker US dollar and a significant dip in US Treasury yields, which has led to a decline in the overall strength of the Greenback. Meanwhile, the US Dollar Index (DXY) inches down to 103.55, and the 10-year yield witnesses a descent from 4.20% to 4.14%, hovering around the lowest levels observed in a span of two weeks.
The escalating tensions between the United States and China have drawn attention, potentially favoring gold as a conventional safe-haven asset. During her recent four-day visit to Beijing, US Commerce Secretary Gina Raimondo reiterated the concerns of the United States, particularly focusing on the challenges faced by American companies due to various operational difficulties and the national security apprehensions stemming from them. Furthermore, discussions between the US and China highlighted China’s recent implementation of restrictions on the export of gallium and germanium, sparking further interest in gold’s potential as a hedge. As these diplomatic and economic dynamics play out, market participants are keeping a vigilant eye on the evolving US-Sino relationship, anticipating possible implications for gold’s trajectory.
However, it is worth noting that the likelihood of the Federal Reserve (Fed) pursuing additional rate hikes poses a potential ceiling for the growth of gold’s value. The sensitivity of gold prices to rising interest rates is driven by the increase in the opportunity cost of holding onto non-yielding bullion. Federal Reserve Chairman Jerome Powell, in his discourse at the Jackson Hole Symposium, expressed the willingness to entertain the prospect of further rate hikes, contingent upon the forthcoming economic data. In line with this, the CME’s FedWatch Tool demonstrates a market consensus of a 16% probability of a rate hike in the upcoming meeting, a marginal decrease from the prior estimate of 20%. This nuanced outlook contributes to some downward pressure on the US dollar.
Conversely, the announcement of a stimulus initiative in China has injected a degree of confidence into investors, resulting in a positive influence on gold prices. Over the past weekend, Chinese authorities conveyed their intention to reduce the trading duty on stocks by 0.1%, a move designed to invigorate the capital market and bolster investor sentiment. Complementing this measure, the China Securities Regulatory Commission (CSRC) is in the process of implementing strategies aimed at reinforcing confidence in listed companies, given the recent downturn observed in the Chinese equities index, which hit a nine-month low. This encouraging stimulus-oriented approach undertaken by the Chinese government has the potential to mitigate the downward pressures on gold prices, with China being a significant global consumer of the precious metal.
The gold trading community’s focus will be squarely fixed on a series of upcoming economic indicators. Notable among these are the US ADP private employment data and the Q2 Gross Domestic Product (GDP) estimates, both slated for release on Wednesday. As the week unfolds, attention will then shift to the Chinese Caixin Manufacturing PMI data for August and the eagerly awaited US Nonfarm Payrolls report, scheduled for release on Friday. The consensus anticipates the creation of approximately 170,000 jobs in the US economy for the month of August. The potential implications of these data points cannot be understated, as they are poised to infuse volatility into the foreign exchange market, potentially casting a clarifying light on the future trajectory of gold prices.