Trade deal, strong US data weigh on gold; Fed meeting eyed for direction

Gold prices have declined further following the initial resolution of the trade disagreement between the EU and the US.

Since its April peak of $3,500 per ounce, the gold price has largely fluctuated between $3,250 and $3,450.

Gold prices dropped on Wednesday as robust US economic data strengthened the belief that the Federal Reserve will maintain current interest rates at its next meeting. 

Economic data

Furthermore, this data increased the probability that any potential rate cuts could be delayed for the rest of the year.

David Morrison, senior market analyst at Trade Nation:

US private payrolls saw a greater-than-expected increase in July, according to the ADP National Employment report, though indicators still point to a slowdown in the labor market. 

Concurrently, a Commerce Department report revealed that second-quarter GDP grew by 3%, surpassing the 2.4% forecast in a Reuters poll.

Later today, the US central bank is largely anticipated to maintain interest rates, despite repeated calls for cuts from President Donald Trump. 

Traders currently estimate a 60% probability of the Fed cutting rates in September, a decrease from the 66% chance seen before the release of this data.

At the time of writing, the gold price on COMEX was at $3,356.10 per ounce, down 0.7% from the previous close. 

Trade deal weigh on sentiments

Gold’s value has dropped by over $100 since last week's high of nearly $3,440 per ounce. 

This decline follows a preliminary agreement reached by the US government with the EU, Japan, and China, aimed at preventing an economic escalation.

Trump's administration initiated the tariff conflict, but the US economy would likely have been the most impacted by even higher tariffs.

“After all, the US is currently imposing tariffs on almost all its trading partners, while the EU, Japan, and China are "only" facing tariffs on one (albeit important) trading partner,” Thu Lan Nguyen, head of FX and commodities research at Commerzbank AG, said in a note. 

However, she said, “the uncertainty surrounding tariffs remains high.”

Outlook

Though the central bank is expected to hold rates at its meeting on Wednesday, a signal to its future path could provide support to the market. 

Regarding timing, the Federal Reserve meeting on Wednesday could provide new clues.

“If the central bankers signal an imminent rate cut — despite ongoing inflation risks — the gold price is likely to benefit,” Nguyen added. 

This week, gold has repeatedly rebounded from its 100-day moving average and remains above $3,300 on Wednesday. 

While the daily moving average convergence divergence is slightly down, it continues to hover around the neutral level.

“This suggests a slight bias to the downside, but that is far from being a reliable trade signal,” Trade Nation’s Morrison said. 

Meanwhile, silver lost ground overnight but has managed to hold above $37 per ounce so far today.

“The lack of clear direction is largely due to the US dollar’s influence and the cautious tone in broader markets ahead of the Federal Reserve’s interest rate decision later this evening,” Morrison said.