By: Economy middle east

Gold prices have faced challenges in leveraging the overnight rebound from the $3,309 mark, which represents a one-week low, and are currently fluctuating within a tight trading range during the Asian session on Friday.

In Dubai, the trend for gold rates mirrored this decline, with 24-carat gold decreasing by AED1.25 to AED400.50. In addition, 22-carat gold fell by AED3.75, settling at AED367.75. The price of 21-carat gold also dropped AED5.00 to AED351.25, while 18-carat gold diminished by AED3.25 to AED302.00.

Spot gold was down 0.54 percent, hovering just above $3,339 per ounce. Concurrently, U.S. gold futures dipped 0.3 percent, also remaining above $3,345. The dollar index advanced by 0.1 percent against its competitors, making dollar-priced bullion more costly for investors holding other currencies.

Dollar retreats from recent highs

The U.S. Dollar (USD) distanced itself further from its peak level, which was reached on June 23, following dovish comments from Federal Reserve (Fed) Governor Christopher Waller. Furthermore, apprehensions regarding U.S. President Donald Trump’s unpredictable trade policies and their potential repercussions on the global economy emerged as significant factors supporting the safe-haven asset. However, meaningful USD depreciation appears elusive as market expectations suggest that the Fed will maintain elevated interest rates for an extended period. This is corroborated by indications that the Trump administration’s rising import tariffs are being passed on to consumer prices. Moreover, the prevailing risk-on sentiment is preventing traders from making fresh bullish bets on the non-yielding yellow metal, necessitating caution before pursuing any additional upward movement. Nevertheless, the XAU/USD pair, at its current position, is on track to record modest losses for the first time in three weeks.

Governor Waller stated late Thursday that the escalating risks to the economy warrant a reduction in the policy rate. He indicated that the central bank should consider cutting its interest rate target in July, especially in light of evidence suggesting the labor market is weakening, which in turn applies some downward pressure on the U.S. Dollar during Friday’s Asian trading session.

Jobless claims hit three-month low

Traders are currently factoring in the likelihood of a 50 basis points policy easing by the Fed this year. Additionally, growing concerns about the economic fallout from President Trump’s erratic trade strategies may continue to bolster gold prices. Recently, Trump announced a 50 percent tariff on copper imports into the U.S. He also informed leaders of 25 countries about new tariff rates set to take effect on August 1 and plans to send notifications to over 150 countries about potential tariff adjustments of 10 percent or 15 percent. This development is likely to keep investors on alert, necessitating caution regarding any significant depreciation in the precious metal’s value.

On the economic data front, the U.S. Commerce Department reported on Thursday that Retail Sales increased by 0.6 percent in June, surpassing market expectations and indicating a modest recovery in consumer spending. This marks a notable improvement following a 0.9 percent decline in May and a 0.1 percent drop in April, providing a glimmer of hope for an economy facing challenges.

Additionally, U.S. Initial Jobless Claims fell for the fifth consecutive week, reaching 221,000 during the week ending July 12, the lowest level in three months. This data suggests that the U.S. labor market remains resilient, despite concerns regarding the inflationary impact of higher U.S. tariffs, reinforcing expectations that the Fed could delay cutting interest rates and favoring USD bulls.

Fed Governor Adriana Kugler emphasized that maintaining a still-restrictive policy stance is crucial for anchoring long-term inflation expectations, suggesting it will be appropriate to sustain the policy rate at its current level for an extended period. Separately, Atlanta Fed President Raphael Bostic acknowledged that the economic outlook remains highly uncertain, making rate cuts challenging in the near term.

Fed’s interest rate outlook

The Fed is generally anticipated to maintain its benchmark interest rate within the 4.25 percent to 4.50 percent range at the upcoming policy meeting later this month. This scenario could act as a headwind for the non-yielding yellow metal. Traders are now keenly awaiting the release of the Preliminary Michigan U.S. Consumer Sentiment and Inflation Expectations data to seize short-term opportunities.

Gold prices experienced a downturn on Thursday, influenced by a stronger dollar and easing market tensions following President Trump’s assertion that it was “highly unlikely” he would dismiss Federal Reserve Chair Jerome Powell.

In Dubai, gold rates reflected this downward trajectory, with 24-carat gold falling by AED1.25 to AED402.75. Similarly, 22-carat gold decreased by AED1.75, arriving at AED372.75. The price of 21-carat gold also saw a reduction of AED1.75 to AED357.50, while 18-carat gold fell AED1.00 to AED306.50.

Vijay Valecha, Chief Investment Officer at Century Financial, remarked to Economy Middle East, “Gold prices edged 0.54 percent lower on Thursday, driven by a rise in dollar buying and a general risk-on sentiment in the market.” Spot gold was down 0.2 percent, resting above $3,339 per ounce. U.S. gold futures dipped 0.4 percent, maintaining levels above $3,344.8. The dollar index saw a 0.1 percent increase against its rivals, making dollar-priced bullion more expensive for foreign currency holders.

Trump clarified on Wednesday that he does not intend to dismiss Powell, yet he left the door open to that possibility and reiterated his criticism of the central bank leader for not reducing interest rates.

Data revealed that U.S. producer prices remained unexpectedly unchanged in June, as an uptick in the cost of goods due to import tariffs was offset by weakness in services.

Cautious investor sentiment

Investor sentiment turned cautious on Wednesday, leading to significant selling of the U.S. dollar and driving the safe-haven gold price to a new multi-week high, spurred by reports that President Trump was considering the removal of Federal Reserve Chair Jerome Powell. Nevertheless, market volatility diminished after Trump assured reporters that he was unlikely to fire the central bank chief.

On the economic front, the U.S. Producer Price Index (PPI) fell short of market expectations and remained flat in June, indicating a notable slowdown in the prices of goods sold by manufacturers. Moreover, remarks from key FOMC members suggest that the Fed will likely hold off on resuming its rate-cutting cycle until at least September.

Ongoing uncertainties surrounding Trump’s trade policies and their implications for the global economy keep investors on edge, potentially providing continued support for the safe-haven gold price and warranting caution for bearish traders. Thus, it may be prudent to wait for strong follow-through selling before positioning for any further depreciation. Investors are now looking ahead to the release of U.S. Retail Sales data and the usual Weekly Initial Jobless Claims. Additionally, statements from key FOMC members are expected to influence USD demand and create trading opportunities around the non-yielding yellow metal.

In related news, New York Fed President John Williams warned that the impact of trade tariffs is currently modest but is projected to escalate over time. Williams highlighted that the economy is in a favorable state, the labor market remains robust, and the existing modestly restrictive monetary policy is well-placed to enable policymakers to evaluate the economy before making any subsequent moves.