Gold prices edged higher on Tuesday as U.S. Treasury yields eased, offering relief to the bullion market. Investors, keenly awaiting upcoming economic data, sought further clarity on the Federal Reserve’s next policy moves as central bank officials signal caution regarding interest rate cuts. The precious metal’s slight rise was supported by strong demand from central banks and the anticipation of further Fed actions, although global demand has seen some regional disparities.
Gold Prices Steady Despite U.S. Dollar Strength
Gold prices rose by 0.41% on Tuesday, reaching 76,360, as U.S. Treasury yields declined, making the zero-yield asset more attractive to investors. Despite the steady rise of the U.S. dollar, which hovered near two-month highs, gold remained resilient, benefiting from shifts in market expectations.
The CME Group’s FedWatch tool suggests a 90% probability that the Federal Reserve will implement a 25-basis-point interest rate cut at its November meeting, adding momentum to gold prices. The potential rate cut is critical for gold, as lower interest rates reduce the opportunity cost of holding non-yielding assets like bullion. This expectation has positioned gold as a safe haven for investors amid global economic uncertainty.
Fed Officials Urge Caution Amid Strong Economy
In recent comments, Federal Reserve Governor Christopher Waller expressed caution about reducing interest rates too quickly, noting the U.S. economy’s robust performance. Waller emphasized the importance of closely monitoring economic indicators before making any drastic policy changes. His stance reflects a more measured approach to rate cuts, underscoring the Fed’s strategy to balance inflation control with economic growth.
Similarly, Minneapolis Federal Reserve President Neel Kashkari acknowledged that further rate cuts could be on the horizon as the central bank continues to target a 2% inflation rate. While inflation has moderated, the Fed remains vigilant, with upcoming economic data likely to shape its next moves. This cautious approach is one reason why gold prices have remained steady, as the market anticipates slower but steady monetary easing.
Central Bank Demand for Gold Remains Robust
Central banks have been significant drivers of gold demand, purchasing bullion for financial and strategic reasons. In the second quarter of 2024, global central bank gold purchases rose by 6%, reaching 183 tons, signaling continued confidence in the precious metal as a stable asset amid economic fluctuations. However, projections for 2024 suggest a slowdown in purchases, with expectations that central banks will buy 150 fewer tons of gold than in previous years.
One notable exception to this trend is China. The People’s Bank of China has refrained from purchasing gold for five consecutive months, a sharp contrast to the behavior of other central banks. This pause comes as China grapples with internal economic challenges, which have affected both consumer sentiment and government spending. The absence of China’s demand has been felt in the global gold market, although the overall impact has been mitigated by continued buying from other regions.
Indian Jewellery Market Sees Premiums Amid Festive Demand
In India, the world’s second-largest gold consumer, physical gold dealers charged premiums for the first time in two months. The surge in demand comes as the festive season kicks off, traditionally a time when gold purchases spike for use in jewellery and as gifts. Indian dealers offered premiums of up to $3 per ounce, reversing the discounts seen just a week earlier.
This demand surge is a welcome change for Indian gold sellers, who had been dealing with subdued sales due to high gold prices and weaker consumer sentiment. Gold plays a critical role in Indian culture, particularly during festivals like Diwali, which has historically driven jewellery sales. The boost in demand offers a temporary reprieve from what has otherwise been a challenging year for the gold market in the country.
China’s Weak Consumer Sentiment Dampens Gold Demand
While India sees a festive bump in demand, the situation is notably different in China. Following the country’s national holidays, consumer sentiment remains weak, leading to lower-than-expected gold demand. High prices have discouraged buyers in China, where gold is not only purchased for its intrinsic value but also as a safe investment. The combination of high gold prices and a sluggish economy has stifled demand, with many consumers opting to hold off on purchases.
The disparity between India and China highlights the regional differences in the global gold market, where cultural factors and economic conditions influence demand in distinct ways. This variation underscores the complexity of predicting global trends in gold consumption, as local markets respond differently to price fluctuations and broader economic indicators.
Gold Demand Declines Globally Amid High Prices
Globally, gold demand outside of over-the-counter trading dropped by 6% year-on-year in the second quarter of 2024, reaching 929 metric tons. Jewellery consumption, in particular, took a significant hit, falling by 19% as high prices deterred consumers. The World Gold Council attributes this decline to gold’s elevated price point, which has made it less accessible for average consumers looking to purchase gold jewellery.
The drop in jewellery consumption reflects a broader trend in the gold market, where rising prices have made it harder for traditional buyers to participate. While central bank demand and investment in gold-backed financial products remain strong, physical gold purchases have seen a notable decline. This shift suggests that while gold retains its appeal as a store of value, high prices are becoming a barrier for everyday consumers.
Technical Analysis: Gold Faces Resistance at Higher Levels
From a technical perspective, gold is experiencing renewed buying pressure, with open interest increasing by 1.87%. This rise in open interest signals that more investors are entering the gold market, betting on further price increases. Gold’s immediate support is pegged at 75,920, with a potential downside target of 75,480 if prices move lower.
On the upside, gold faces resistance at 76,645, and a break above this level could push prices toward 76,930. Analysts are watching these technical levels closely, as a breach of resistance could signal further gains for the precious metal. However, if prices fail to break through, a pullback could be on the cards, especially as traders await further economic data to guide their next moves.
Conclusion: Gold Poised for Volatility as Economic Data Looms
Gold prices remain in a delicate balance, supported by declining U.S. Treasury yields and central bank demand, but facing headwinds from high prices and mixed global demand. With the Federal Reserve’s next moves on monetary policy still uncertain, the gold market is poised for potential volatility in the coming weeks.
As traders await key economic data, including inflation figures and employment reports, the path forward for gold remains tied to the broader macroeconomic landscape. Central banks, while still buying gold, are expected to slow their purchases in 2024, which could impact overall demand. Regional variations, such as India’s festive-driven demand and China’s weaker post-holiday market, add further complexity to the outlook for gold.
In the near term, gold will continue to respond to fluctuations in U.S. Treasury yields, investor sentiment, and Federal Reserve policy decisions. Traders and investors alike will be closely watching for any shifts in these key factors, which could determine whether gold continues its upward trajectory or faces renewed selling pressure.
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