Economic woes and worsening US-China ties lend support to Gold price

A private survey showed on Wednesday that business activity in China’s service sector grew less than expected in June and further fueled worries about a global economic downturn. Apart from this, the potential risk of a further escalation in a trade conflict between China and the US - the world’s largest economies - tempers investors' appetite for perceived riskier assets. This is evident from a generally weaker tone around the equity markets and turning out to be a key factor lending some support to the safe-haven Gold price. That said, the prospects for further policy tightening by the Federal Reserve (Fed) might hold back traders from placing aggressive bullish bets around the non-yielding yellow metal.

Bets for more rate hikes by Federal Reserve might cap XAU/USD

The minutes from the June Federal Open Market Committee (FOMC) policy meeting released on Wednesday revealed that almost all members supported resuming rate hikes as inflation remains unacceptably high. Furthermore, some members were in Favor of raising rates rather than pausing at the June meeting, flagging a very tight labor market that threatens to push wages and inflation higher. The outlook reaffirms market bets for a 25 basis points (bps) lift-off at the upcoming FOMC meeting on July 25-26 and led to the overnight sharp rise in the US Treasury bond yields. This, along with a more hawkish stance adopted by other major central banks, might contribute to capping gains for the Gold price.

Hawkish outlooks by BoE and ECB warrant caution for bulls

The current market pricing indicates the possibility of a further 130 bps of tightening by the Bank of England (BoE) by the end of this year. Moreover, BoE Governor Andrew Bailey last week justified the decision to hike interest rates by a jumbo 50 bps on June 22 and said that rates could remain at peak levels for longer than traders currently expect. Moreover, the European Central Bank (ECB) policymakers expect to increase borrowing costs again in July and September meetings despite signs the Euro Zone economy is flagging. This makes it prudent to wait for strong follow-through buying before positioning for the resumption of the recent recovery in the Gold price from its lowest level since mid-March.