The gold price has continued its ascent, building on a recent rebound from its multi-week low of around $1,900. In a positive development, the XAU/USD has reached a three-day high, reaching the $1,915-$1,916 range during the Asian trading session. However, significant upward movement still appears somewhat elusive at this stage.
The decline in the US Dollar (USD) from its peak, which was last seen in March, is playing a pivotal role in drawing interest towards the US Dollar-denominated gold price. This drop in the USD can be attributed to profit-taking, coupled with a slightly softer sentiment surrounding US government bond yields. Nevertheless, expectations of the Federal Reserve (Fed) maintaining higher interest rates for an extended period should provide support for US bond yields and the Greenback.
Continued robust economic data from the United States underscore the resilience of the nation’s economy and bolster the case for further tightening of monetary policy by the Fed. The US Census Bureau’s report for August revealed a 0.6% increase in Retail Sales, surpassing expectations for a 0.2% rise and exceeding the previous month’s revised reading of 0.5%. Additionally, Initial Jobless Claims for the second week of September rose less than anticipated, reaching 220,000 compared to the previous 217,000.
The US Bureau of Labor Statistics published the US Producer Price Index (PPI), indicating a 0.7% acceleration in August from the previous 0.4%, with an annual rate increase to 1.6%, surpassing projections of 1.2% and the July figure of 0.8%. Coupled with Wednesday’s US Consumer Price Index (CPI) report, this data suggests that inflation remains persistent, potentially allowing the Fed to adhere to its hawkish stance. This favorable outlook bolsters the USD bulls and keeps a lid on substantial gains for gold, which offers no yield.
Moreover, a generally positive risk sentiment, fueled by increased stimulus measures from China, could further constrain the upside potential for the safe-haven precious metal. Investor optimism rose after the People’s Bank of China (PBoC) lowered the Reserve Requirement Ratio for a significant portion of the banking system by 25 basis points. This marks the second such reduction this year and is expected to inject more liquidity into the world’s second-largest economy, potentially mitigating recession concerns.
Given this overall fundamental backdrop, coupled with the recent breach of the technically significant 200-day Simple Moving Average (SMA), it appears that the path of least resistance for gold is still to the downside. Therefore, any subsequent price increases may be viewed as selling opportunities and may dissipate rather swiftly. Traders are now closely monitoring the US economic calendar, with a focus on the Empire State Manufacturing Index and Preliminary Michigan Consumer Sentiment Index.