Gold price (XAU/USD) rose for the second consecutive day on Tuesday, marking the fifth day of recent positive movement, reaching around $2440.
However, it remains below its highest level since May 20, amid some U.S. dollar buying as the prevailing risk environment limits the safe-haven commodity’s upside.
The trend appears strongly bullish in the near term due to growing expectations that the Federal Reserve will start cutting interest rates in September.
These expectations were confirmed by comments from Fed Chair Jerome Powell, which kept U.S. Treasury yields low and maintained positive outlooks for non-yielding gold. Markets are now awaiting the release of U.S. monthly retail sales data for new directional momentum.
On Monday, Fed Chair Jerome Powell said that recent inflation data increased confidence that price increases and inflation are returning to the 2% target at a regular and consistent pace. This comes after the U.S. Labor Department reported last week that the core consumer price index fell in June for the first time in over four years, with the annual rate slowing to 3% from 3.3% in May.
Powell added that the Fed does not expect to wait until inflation reaches 2% before moving toward monetary easing, suggesting that interest rate cuts may not be far off, providing some near-term support for gold prices. Current market prices indicate higher chances of the Fed reducing borrowing costs in September and potentially cutting rates again by the end of this year.
Thus, I believe the U.S. dollar is gaining some positive momentum and moving away from its more than three-month low touched yesterday, which could limit any new gold price increases in the medium term. The continued risk-on sentiment in global stock markets would help keep gold prices steady before the U.S. retail sales release. I expect core retail sales figures to remain flat in May, while sales excluding automobiles could rise by 0.1% for the month.
Additionally, the U.S. Dollar Index rose to around 104.50 today, and the yield on the benchmark 10-year U.S. Treasury note remained near 4.2%. Meanwhile, U.S. stock futures rose slightly after major Wall Street indices closed the first trading day of the week in positive territory.
Unusually, in the inverse relationship between gold and the dollar, gold regained strength after testing the $2400 level and closed modestly higher on Monday. The price maintains its strength, heading towards the $2450 level on Tuesday.
I think this is due to the more dovish remarks from Fed Chair Jerome Powell in his speech yesterday, pointing to recent inflation data that bolstered optimism that inflation is still on track toward the 2% target. This increased hopes for the beginning of monetary easing soon, adding to the rate-cut trend and further boosting gold prices. Here, the price could be influenced by upcoming data, increasing its sensitivity in either upward or corrective downward directions, so traders and investors should exercise caution.
