- Gold consolidates its recent gain above $1,930 amid the USD weakness.
- Gold prices may benefit from the renewed tension between the US and China.
- Market anticipated the odds for additional rate hikes by the Federal Reserve (Fed).
- Traders will closely watch the US ADP private employment, US Gross Domestic Product (GDP) data due on Wednesday.
Gold Price (XAU/USD) struggles to gain around $1,935 during the early European session on Wednesday. The weaker US dollar and a sharp drop in US Treasury yields drags the Greenback lower across the board. Meanwhile, the US Dollar Index (DXY) edges lower to 103.55 while the 10-year yield fell from 4.20% to 4.14%, near the lowest level in two weeks.
The exacerbating tension between the US and China might benefit gold, the traditional safe-haven. US Commerce Secretary Gina Raimondo emphasized US concerns regarding difficulties operating American companies and national security issues during the visit to Beijing for four days. Furthermore, the US and China also discussed China’s recent restrictions on gallium and germanium exports during a meeting. Market players will monitor the development surrounding the US-Sino relationship for fresh impetus.
Furthermore, the odds of additional rate hikes by the Federal Reserve (Fed) might cap the upside for gold. It’s worth noting that gold is sensitive to rising interest rates as they raise the opportunity cost of holding non-yielding bullion. That said, Federal Reserve (Fed) Chairman Jerome Powell stated at the Jackson Hole Symposium that he would open the door for more rate hikes. However, it would depend on incoming data. According to the CME’s FedWatch Tool, markets are pricing in a 16% chance of a rate hike in the next meeting versus 20% prior. This, in turn, exerts some selling pressure on the USD.
On the other hand, the announcement of China’s stimulus measure lifts investors’ confidence and boosts the gold prices. On the weekend, the Chinese authorities said that they would reduce the 0.1% duty on stock trading to stimulate the capital market and strengthen investor confidence. Additionally, the China Securities Regulatory Commission (CSRC) is implementing measures to bolster market confidence in listed companies after the Chinese equities index slumped to nine-month lows. The positive development surrounding the stimulus plan from the Chinese government could limit gold’s downside as China is the major gold consumer in the world.
Gold traders will monitor the US ADP private employment and estimate of Q2 Gross Domestic Product (GDP) data due on Wednesday. Attention will turn to the Chinese Caixin Manufacturing PMI for August and highly-anticipated US Nonfarm Payrolls on Friday. The US economy is expected to create 170K jobs for August. These events could trigger volatility in the FX market and give a clear direction in gold prices.