|

Gold Price Forecast: XAU/USD recovery rally stalls, as focus shifts to Wednesday’s Fed Minutes

  • Gold price pauses its three-day recovery rally amid cautious markets early Tuesday
  • US Dollar ticks higher with US Treasury bond yields, as investors keep cheering bets of fewer Fed rate cuts. 
  • Gold sellers return after facing rejection at the 21-day SMA near $2,025. RSI surrenders the 50 level.  

Gold price is trading on the back foot below $2,020 early Tuesday, following a positive start to the week and logging a three-day recovery rally. The Gold price upside seems likely capped by a renewed uptick in the US Dollar and the US Treasury bond yields, as markets brace for a return of the American traders.

Gold price looks to Wednesday’s Fed Minutes for fresh impetus

Risk sentiment remains in a weak spot so far this Tuesday, as investors fail to cheer a bigger-than-expected Loan Prime Rate (LPR) by the People’s Bank of China (PBoC). The Chinese central bank left the one-year LPR unchanged but lowered the five-year mortgage lending rate by a record 25 basis points (bps) from 4.20% to 3.95%. However, a lack of fiscal policy support measures from China leaves markets unimpressed.

Traders also digest the recent fading expectations of early and aggressive Federal Reserve (Fed) rate cuts, in the face of the previous week’s hot US Consumer Price Index (CPI) and Producer Price Index (PPI) data. Markets began this year by pricing six Fed rate cuts, now expecting only three. Markets are currently pricing a 76% chance of a cut in June, according to the CME Group’s Fed Watch Tool. A March Fed rate cut is almost fully priced out.

A downbeat mood combined with delayed Fed rate cut bets continue to support the US Treasury bond yields and the US Dollar at the expense of the non-yielding Gold price.

Gold price now looks forward to Wednesday’s Fed Minutes and US S&P Global business PMI data on Thursday, in the absence of any high-impact US economic data releases on Tuesday. Also, of note remains the earnings result from the American tech-giant Nvidia on Wednesday, as it could have a significant impact on the market sentiment.

In the meantime, some appearances from the Fed officials could help markets reverberate expectations of a delayed Fed policy pivot, influencing the value of the US Dollar and the Gold price.

Gold price technical analysis: Daily chart

Gold price faced rejection at the 21-day Simple Moving Average (SMA), now at $2,023, on a daily closing basis, reviving the selling interest.

The 14-day Relative Strength Index (RSI) snapped its recovery mode and fell back below the midline, suggesting that a pullback toward the $2,000 threshold could be in the offing.

That level could offer a strong support, as the upward-pointing 100-day SMA aligns there.  

However, Gold sellers need to crack the previous day’s low of $2,011 before testing rising trendline support at $2,005 and the 100-day SMA at $2,000.

On the upsid, the immediate resistance at the 21-day SMA of $2,023 needs to be taken out to resume the recovery toward the 50-day SMA of $2,033.

Acceptance above that level will create fresh buying opportunities in Gold price, targeting the February 7 high of $2,044 and the $2,050 psychological barrier.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

More from Dhwani Mehta
Share:

Editor's Picks

AUD/USD hangs near three-week low, below 0.6950 as traders await US NFP report

AUD/USD hits a three-week low during the Asian session on Friday as the RBA’s dovish shift and a rout in equity markets weigh on the risk-sensitive Aussie. However, the recent slump in US bond yields to a two-month low keeps US Dollar bulls on the back foot and limits losses for the currency pair as traders look to the US NFP report for a fresh impetus.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold loses the grip; $4,000 comes next on the downside

Gold sets aside two daily advances in a row on Friday, opening the door to a potential test of the key $4,000 mark per troy ounce. The precious metal’s retracement follows a decent improvement in the sentiment surrounding the US Dollar, solid NFP data and higher US Treasury yields across the board.

Democrats win House and Senate in US midterms: Why isn’t all bad news for crypto

The biggest story this week was Tuesday’s US midterm elections, which saw Democrats win control of both the House and the Senate in a clear blue wave. This political shift in the US has triggered sharp price swings across the cryptocurrency market.

Week ahead – Inflation and geopolitics in focus as US political landscape shifts

Post-midterm election euphoria fizzles out as risk aversion prevails. US CPI, PPI and Fedspeak on the radar as Fed hike bets remain supported. Oil retreat pauses on mixed hopes about the ongoing conflicts.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.