Gold Prices Rise Amid Nvidia Earnings Disappointment and Revived China Demand
Gold prices have recently experienced an uptick as markets digest disappointing earnings from tech giant Nvidia and renewed demand from China. The precious metal (XAU/USD) gained approximately half a percent on Thursday, trading around the $2,510 range. This increase is primarily driven by safe-haven inflows as investor sentiment turned slightly negative. Despite Nvidia’s Q2 earnings exceeding expectations, the figures failed to justify the stock’s high valuation, leading to cautious reactions in the market.
Nvidia Earnings Become a Macro Event
Nvidia’s earnings have evolved into a broader macroeconomic event due to the company’s significant influence within the tech sector. Although the earnings beat estimates, the stock’s valuation is seen as stretched, contributing to a more subdued market response. However, European stocks have begun to recover following a shaky start, indicating a potential shift in overall market sentiment.
Revival in Chinese Demand Supports Gold
Adding to the upward momentum of gold is the revival of demand from China. Data from the World Gold Council (WGC) earlier this week showed a 17% increase in China’s net gold imports in July, marking the first monthly rise since March. This resurgence in demand from one of the world’s largest gold consumers has provided a solid foundation for the metal’s recent price gains.
Gold Benefits from a Weaker US Dollar
Gold has also benefited from a weakening US Dollar, a currency to which it is typically negatively correlated. The US Dollar Index (DXY) has been pulling back, trading in the 100.90 range on Thursday, down from a peak of 101.18 reached the previous day. This decline in the dollar has made gold more attractive to investors as a hedge against currency depreciation.
Market Focus on US Economic Data
Market participants are closely monitoring upcoming US economic data, including Jobless Claims and Gross Domestic Product (GDP) figures, for further insights into the future direction of US interest rates. The jobless claims data is particularly significant, especially after Federal Reserve Chairman Jerome Powell highlighted risks to the labor market from maintaining high-interest rates during his Jackson Hole speech. The GDP data, a revision of the Q2 estimate, is expected to remain steady at 2.8%. Weaker-than-expected data could push gold prices higher, as it would indicate that the Fed may need to lower interest rates sooner than previously anticipated.
Interest Rates and Gold’s Appeal
Lower interest rates tend to enhance gold’s appeal, as it is a non-interest-bearing asset. Although markets have already priced in a rate cut from the Fed at their September 18 meeting, the size of the cut remains uncertain. According to the CME FedWatch tool, there is a 34.5% probability of a 0.50% “mega cut,” a figure that has remained relatively stable over the past day.
December 2024 Fed Rate Cut Speculation
The December 2024 Chicago Board of Trade (CBOT) fed funds futures contract, another indicator of future interest rate trends, is pricing in a total of 100 basis points, or 1.00%, in Fed rate cuts by the end of the year. With only three scheduled Fed meetings remaining in 2024, this pricing implies that at least one of these meetings could result in a 0.50% rate cut.
Friday’s PCE Inflation Data: A Crucial Indicator
Friday could be a pivotal day for gold, as the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, is set to be released. Economists expect core PCE inflation to rise to 2.7% in July from 2.6% in June on a year-over-year basis. A higher-than-expected inflation reading could weaken gold, as it would suggest that the Fed needs to maintain elevated interest rates for a longer period. Conversely, a lower-than-expected result would likely boost gold prices, as it would indicate a potential easing of monetary policy.
Risks to Gold: Overcrowded Long Positions
Despite the bullish factors supporting gold, there are risks to the current price levels. Daniel Ghali, Senior Commodity Strategist at TD Securities, has warned of extreme long positioning in gold, suggesting that the trade may be overcrowded. “Downside risks are now more potent. The ship is crowded. It has scarcely been as crowded as it is today. Do you have a slot secured on the lifeboat?” Ghali remarked, highlighting the potential for a sharp pullback in prices.
Tactical Short Position by TD Securities
In a follow-up note on Thursday, TD Securities announced they are entering a tactical short position in gold, with an entry point at $2,533, a target of $2,300, and a stop loss at $2,675. This move reflects their view that the risks of a downside correction have increased, despite the metal’s recent strength.
Technical Analysis: Gold’s Mini-Range Consolidation
From a technical analysis perspective, gold (XAU/USD) is currently consolidating within a mini-range between $2,500 and $2,531, extending above its previous range. While the short-term trend could be seen as sideways, the medium and long-term trends remain bullish, suggesting that the odds still favor an eventual breakout to the upside.
Potential Breakout Targets
The breakout from the prior range, which resembles an incomplete triangle pattern, occurred on August 14 and generated an upside target of approximately $2,550. This target is based on the principles of technical analysis, specifically by applying the 0.618 Fibonacci ratio to the range’s height and extrapolating it higher. A break above the August 20 all-time high of $2,531 would confirm a continuation toward the $2,550 target. Conversely, a daily close below $2,470 would negate the upside target and suggest that gold might enter a short-term downtrend.
Outlook for Gold
As the market navigates these complex dynamics, the outlook for gold remains closely tied to broader macroeconomic developments and investor sentiment. The interplay between rising demand, fluctuating interest rate expectations, and technical factors will likely continue to drive the action of precious metals prices in the coming days.
