Gold has appreciated, buoyed by last week’s lower US CPI data with the path of least resistance to the upside. The precious metal thrives in a low interest rate environment and the mere anticipation of a rate cut from the Fed in September has re-awoken gold bulls.
The precious metal had been hovering around the 161.8% Fibonacci extension of the major 2020 – 2022 decline before the reacceleration to the upside. Gold prices subsided after reaching a new all-time high in May as China, the world’s largest purchaser of the precious metal, dialed back its monthly purchases.
Gold (XAU/USD) Daily Chart
Source: TradingView, prepared by Richard Snow
The gold outlook is likely to will depend on whether a combination of a lower dollar and US yields can reinvigorate bullish demand at already elevated prices. However, at the heart of the recent move is the greater expectation of a Fed rate cut in September. Markets have fully priced in the cut and have opened the door to two rate cuts by year end with a 50% chance of a third.
CME FedWatch Tool Showing Rapid Change in Rate Cut Expectations
Source: CME FedWatch Tool, prepared by Richard Snow
The weekly chart reveals the difficulty in pushing consistently above the prior high, as gold bulls failed to maintain upward momentum above $2,450 an ounce.
Gold (XAU/USD) Weekly Chart
Source: TradingView, prepared by Richard Snow
Gold volatility has subsided now that tensions in eastern Europe and the Middle East have cooled, although, fighting carries on. 30-day implied gold volatility (GVZ) has picked up more recently but it will take a major catalyst from here to entice buyers to return in a meaningful way to sustain prices well above the all-time high.
Source: DailyFX