Gold price falling to a more than one week low.
The gold price (XAUUSD) continued its recent corrective slide from the record high reached last week, falling to a more than one-week low on Monday. US President Joe Biden’s withdrawal from the 2024 presidential race enhanced. Donald Trump’s prospects of becoming the next US President, creating optimism for a more relaxed regulatory environment. This, combined with unanticipated interest rate reduction by the People’s Bank of China (PBoC) bolstered investors’ appetite for risky assets while weighing hard on the safe-haven precious metal.
Bets that the Fed would decrease interest rates in September provide some support and help minimize losses.
Meanwhile, a second Donald Trump presidency is projected to raise long term inflation expectations, prompting an overnight increase in US Treasury bond yields. This functioned as a tailwind for the US Dollar (USD) and helped to shift flows away from the non-yielding Gold price. However, rising consensus that the Federal Reserve (Fed) will begin its rate-cutting cycle in September curbs USD gains and allows the XAUUSD to soar back above the $2,400 level during the Asian session on Tuesday.
Daily Digest Market Movers: Gold price draws some buyers as Fed rate cut forecasts continue to weigh on the USD.
Investors responded little to US President Joe Biden’s decision to withdraw his re-election campaign on Sunday. Citing optimism that Trump’s promised policies would help the US share market.
In addition, the People’s Bank of China (PBoC) startled markets by lowering key short and long-term interest rates, boosting global risk sentiment.
China’s central bank cut the one-year loan prime rate (LPR), five-year LPR. And seven-day reverse repo rate by 10 basis points (bps), to 3.35%, 3.85%, and 1.7%, respectively.
The action follows displeasure with the Third Plenum meeting of Chinese authorities last week. Which failed to provide short-term stimulus to assist the real economy.
However, the confluence of circumstances resulted in a A new wave of risk-on trade emerged. Which had a significant role in the overnight drop in the safe-haven gold price.
Furthermore, a second Trump presidency is projected to be more inflationary. Raising US Treasury bond yields and contributing to a shift away from the XAUUSD.
Meanwhile, money markets have fully priced in a Federal Reserve rate drop in September. Putting US Dollar bulls on the defensive and supporting gold.
Traders are now looking to Tuesday’s US economic calendar. Which includes Existing Home Sales and the Richmond Manufacturing Index, for short-term chances later in the North American day.
The US Q2 GDP on Thursday and the US PCE figures on Friday will be closely watched for new impetuses.
However, the market emphasis will remain glued to Thursday’s release of the Advance US Q2 GDP. And the US Personal Consumption Expenditures (PCE) Price Index figures were released on Friday.
Aside from that, investors will be confronted with the release of flash PMIs this week. Which should provide clues about the health of the global economy and give the commodity a boost.
