Gold Price Forecast: XAU/USD needs to defend the 2,400 level, as more Fedspeak looms


  • Gold price retreats further from the new all-time-high of $2,450 set on Monday.
  • The US Dollar extends rebound with US Treasury bond yields, as risk sentiment sours.
  • Downside appears limited for Gold, as RSI stays bullish on the daily chart.
  • The focus shifts to more Fedspeak for policy cues and the next Gold price move.

Gold price extends pullback from the lifetime high of $2,450 set on Monday, as the US Dollar (USD) draws haven demand amid broad risk aversion. Attention again turns toward upcoming speeches from the Federal Reserve (Fed) policymakers that dominate early this week, in the absence of top-tier US economic events.

Gold price retreats ahead of more Fedspeak

The week set off with a bunch of Fed officials taking up the rostrum, adopting a cautious stance on the inflation and interest rate outlook. The Fedspeak suggested that even though rate cuts remain on the table later this year, expectations for 75 basis points (bps) rate cuts waned significantly.

Cleveland Fed President Loretta Mester warned on Monday that “inflation risks are tilted to the upside,” adding that she no longer thinks three rate cuts in 2024 are appropriate. San Francisco Fed President Mary Daly said that while she expects shelter inflation to slowly improve, the Fed policymaker doesn't expect progress to be quick.

Fed Vice Chair for Supervision Michael Barr said that the Fed is in a good position to hold the policy steady and watch the economy, per Reuters. Meanwhile, Fed Vice Chair of the Board of Governors Phillip Jefferson noted that it was too early to tell if the recent slowdown in the disinflationary process will be long-lasting.

These cautious remarks helped the US Dollar find demand due to easing bets of aggressive Fed rate cuts while also fuelling a rebound in the US Treasury bond yield. Gold price, thus, retraced from fresh record highs.

Gold price jumped to $2,450, a new all-time high, after reports Iran’s President Ebrahim Raisi and Foreign Minister Hossein Amirabdollahian died in a helicopter crash in Iran's East Azerbaijan province hit wires in the Asian hours on Monday.

In Tuesday’s trading so far, risk-aversion keeps the safe-haven flows into the US Dollar intact, exerting further selling pressure on Gold price. Markets turn cautious ahead of a slew of speeches from Fed policymakers, including Vice Chair John Williams and Governor Christopher Waller.

Also, Gold traders also refrain from placing fresh positions ahead of Wednesday’s Fed Minutes and Nvidia earnings results, which could have a signficant impact on risk sentiment and the value of the US Dollar.

Gold price technical analysis: Daily chart

As observed on the daily chart, the 14-day Relative Strength Index (RSI) has turned south but holds above the midline to currently hover near 62.60, suggesting that the downside appears limited for Gold price.

Gold buyers must find acceptance above the record high of $2,441 if the $2,450 psychological level needs to be taken out.

A sustained move above the latter could open doors for a fresh rally toward $2,500.

However, if Gold sellers need to defend the $2,400 round figure. Failure to do so could trigger a fresh drop toward Friday’s low of $2,374.

The next downside target is seen at the 21-day Simple Moving Average (SMA) at $2,344.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

 

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