Gold price rises as Powell shows patience

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Gold price rises as Powell shows patience

  • Gold prices rose above $2,360 after Powell’s Senate testimony indicated a cautious approach to interest rate cuts.
  • The yield on the 10-year US Treasury bond rises to 4.296%, while the DXY gains 0.14%.
  • The World Gold Council reports a second month of inflows into ETFs, in contrast to the People’s Bank of China’s halt in gold purchases.

Gold prices rose in the North American session on Tuesday after Federal Reserve Chairman Jerome Powell appeared before the U.S. Senate Banking Committee and said inflation was heading toward the Fed’s 2% target, but he was not ready to lower borrowing costs. XAU/USD traded at $2,364, up more than 0.25%.

The gold metal pared a diminutive loss on elevated US Treasury yields and a forceful US dollar. The US 10-year core bond coupon rose one and a half basis points (bps) to 4.296%, while the US Dollar Index (DXY) was consistently above the 105.00 level, up 0.14%.

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Fed Chairman Powell said “elevated inflation is not the only risk we face,” warning that cutting interest rates too little or too soon could put the economy at risk. He added that while it was possible to raise rates if the data confirmed it, the most likely course would be “to start easing policy at the right time.”

In addition, the World Gold Council (WGC) revealed that gold exchange-trading funds (ETFs) recorded their second straight month of inflows in June. The WGC said the funds’ total holdings rose by around 18 tonnes to 3,106 tonnes.

This contrasts with the People’s Bank of China’s (PBoC) decision not to buy gold in June, as it did in May. China held 72.80 million troy ounces of the precious metal at the end of June.

This week’s U.S. economic schedule includes Powell’s speech to the U.S. House of Representatives on Wednesday, followed by the release of consumer and producer inflation data. Initial jobless claims and consumer sentiment at the University of Michigan will round out the schedule.

Daily Market Update: Gold Rise as Powell Speaks

  • US CPI is expected to fall from 3.3% to 3.1% year-on-year in June, while core inflation is expected to hold steady at 3.4% year-on-year.
  • The consensus is for initial jobless claims in the week ending July 6 to rise from 238,000 to 240,000.
  • The consensus forecast is for consumer sentiment to improve to 68.5 in July, from 68.2 in June.
  • The minutes of the June Federal Open Market Committee (FOMC) meeting revealed that most participants viewed current policy as restrictive but were open to further rate hikes. Policymakers acknowledged that the economy was cooling and could respond to unexpected economic weakness.
  • Investors are pricing in a 70 percent chance the Federal Reserve will cut interest rates in September, up from a 73 percent chance on Monday, according to data from the CME FedWatch tool.
  • The December 2024 federal funds rate futures contract implies the Fed will ease policy by 39 basis points (bps) by the end of the year.

Technical Analysis: Gold Price Fluctuates Around Head Neck Shoulders Line

Gold price formed a bearish Harami candlestick pattern after breaking the Head and Shoulders line, which pushed the XAU/USD pair towards $2,400 before falling back to the current price level.

Buyers are still in control as the Relative Strength Index (RSI) is in bullish territory above the neutral 50 line.

Therefore, the first resistance for gold will be the July 5 high at $2,392, followed by $2,400. Further up is in sight, and the next resistance lies at this year’s high at $2,450, before $2,500.

Conversely, if XAU/USD falls below $2,350, the gold metal could fall towards $2,300. If this support fails, the next demand zone will be the May 3 low of $2,277, followed by the March 21 high of $2,222.

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