Global gold prices rebounded during the Asian session on Tuesday (August 6) after a sell-off in the US market. Despite fluctuating within a nearly $100/oz range overnight, gold prices eventually held above the key $2,400/oz level.
Analysts attributed the move to a temporary correction, as the long-term supportive factors for the precious metal remain intact, including a low-interest-rate environment, geopolitical risks, and economic uncertainties.
As of nearly 10 am Vietnam time, the spot gold price in the Asian market was $2,412.50/oz, up $1.10/oz from the previous session’s close, or 0.05% – according to data from the Kitco exchange. Converted at Vietcombank’s selling exchange rate, this price is equivalent to about VND 73.5 million/troy ounce, down VND 900,000/troy ounce from yesterday morning.
In the overnight session in New York, spot gold fell $32.70/oz from the previous week’s close, or 1.33%, to close at $2,411.40/oz.
During the session, there were times when gold prices fell to $2,360/oz, while the peak was around $2,460/oz, a range of nearly $100/oz.
Gold was sold off along with stocks and many other risky assets, instead of serving as a safe-haven investment. Despite being a traditional safe haven, gold couldn’t escape the sell-off that swept across markets from Asia to Europe and the US.
One reason for the global financial market sell-off at the start of the week was concern about a possible US recession. Another reason was the strong appreciation of the Japanese yen, which forced carry trade investors to sell other assets and buy the yen to repay yen-denominated loans.
“Investors are panicking and selling anything they can, including gold and silver,” said senior analyst Jim Wyckoff of Kitco Metals.
The recovery of gold prices from the session’s lows was attributed to the decline in US Treasury yields and the US dollar index.
Concerns about a US recession pushed down US Treasury yields. Treasury prices rose as investors flocked to this safe-haven asset. The yield on the 10-year note fell to 3.78% at the end of the session, the lowest level since June 2023.
The Dollar Index, which measures the strength of the US dollar against a basket of six major currencies, fell 0.46% to close at 102.69.
The US dollar weakened against the Japanese yen, falling 1.77% to 143.94 yen per dollar.
The market believes that the Federal Reserve (Fed) will have to cut interest rates three times before the end of the year to prevent the economy from falling into recession. According to data from the FedWatch Tool on the CME exchange, the probability of a Fed rate cut in September, November, and December is currently 100%.
However, Chicago Fed President Austan Goolsbee did not consider the January jobs report as a sign that the economy is heading for a recession. In an interview with CNBC on Monday, Goolsbee avoided making any specific commitments regarding the Fed’s rate path. He stated that the current Fed rate could be considered “tight” and that if the economy were to deteriorate rapidly, the Fed would need to “fix” it.
According to James Knightley, chief economist at ING in the US, Goolsbee is “often the most dovish member of the Fed, and yet this time his statement didn’t give any alarming signals.”
Nevertheless, with the Fed likely to start cutting rates in September, and the magnitude could be 0.5 percentage points instead of 0.25, gold prices – a non-interest-bearing asset – will be supported. Experts also believe that gold’s ability to hold above the key $2,400/oz level is a positive sign that the uptrend remains intact.
Gold prices are also supported by rising tensions in the Middle East. The market is concerned that Iran’s retaliation for the assassination of a Hamas leader in Tehran could lead to a full-scale war in the region.
Additionally, in the event of a US recession, safe-haven assets like gold are typically favored by investors seeking to preserve their wealth.
So far this year, global gold prices have risen more than 16%.
“Increasing geopolitical tensions and expectations of more aggressive Fed rate cuts will create favorable conditions for gold to rise. The time will come for gold prices to set new records once the current volatility in the market subsides,” said Han Tan, an analyst at Exinity Group.
