Gold price rallied over 1% on Monday as the US Dollar and US Treasury yields tumbled sharply amid uncertainty over trade deals, amid an overall risk-on mood on the markets. At the time of writing, the XAU/USD trades at $3,397 after bouncing off daily lows of $3,338.
Risk appetite improved as traders await the release of earnings in the United States (US). In the meantime, the August 1 tariff deadline imposed by the White House looms, keeping investors uneasy about trade deals between the US and its three major trading partners, including the European Union (EU), Canada and Mexico.
Trade news revealed that the EU envoys are set to meet as early as this week to formalize a retaliation plan in the event of a possible no-deal scenario with US President Trump, according to Bloomberg.
The Wall Street Journal reported that US Treasury Secretary Bessent recommended Trump not to fire Fed Chair Jerome Powell, as it would cast doubts on the Federal Reserve’s (Fed) independence. This would spark a reaction in the markets, pushing the US Dollar down and US Treasury yields up.
Other news revealed that the People’s Bank of China kept its key lending rates unchanged at its latest meeting, as expected.
This week, the US economic docket remains scarce with the release of housing data, Jobless Claims for the week ending July 19, and Durable Goods Orders data.
Finally, Gold has cleared the top of the $3,300-$3,350 range, reaching a five-week high of $3,401, before settling below the latter, as bullish momentum grows. The Relative Strength Index (RSI) confirms this, as the RSI edges higher toward the 60.00 level, indicating that bulls are in charge.
If XAU/USD ends the day above $3,400, expect a test of the June 16 high of $3,452, ahead of the record high of $3,500. Otherwise, if Gold stays below $3,400, the first support would be $3,350, followed by $3,300. Once cleared, prices could decline to the June 30 low of $3,246, followed by the 100-day Simple Moving Average (SMA) at $3,218.
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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AUD/USD extended further its rebound from last week’s floor near 0.6450, managing to reclaim the area above the relevant 0.6500 the figure in response to the intense sell-off in the US Dollar, while trade jitters also adding to the picture.
EUR/USD built on Friday’s advance and surpassed the 1.1700 hurdle to hit multi-day highs in quite a promising start to the new trading week. The move higher in spot came in response to extra weakness in the Greenback amid steady trade concerns and speculation over the Fed’s independence.
Gold prices began the week on a high note, briefly surging over the important $3,400 mark per troy ounce on Monday. In the absence of major data releases, the overall weakening in US yields and widespread weakness in the US Dollar continue to bolster the precious metal.
Ripple (XRP) is gaining momentum and closing in on its all-time high of $3.66 on Monday. The bullish outlook is supported by institutional demand, which continues to drive the expansion of spot and derivatives markets.
China's second-quarter GDP beat forecasts again with a 5.2% year-on-year growth, driven by strong trade and industrial production. Yet sharper-than-expected slowdowns in fixed-asset investment and retail sales and falling property prices are a concern.
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