Gold Price Forecast: XAU/USD remains a ‘buy-the-dips’ trade ahead of key US data
- Gold price retraces from three-month highs of $2,120 early Tuesday.
- US Dollar attempts a recovery amid China concerns, despite muted Treasury bond yields.
- Gold price retreat is a good buying opportunity amid a bullish daily technical setup.
Gold price is duplicating the corrective moves seen during Monday’s Asian trading, as the US Dollar attempts a tepid recovery early Tuesday amid a risk-off market environment and sluggish US Treasury bond yields.
Gold price keeps the bullish potential intact
Gold price is retracing from fresh three-month highs reached at $2,120 in the American session on Monday, as China’s Caixin Services PMI and 2024 economic growth target disappointed markets and triggered a rush for safety in the US Dollar.
China's Services Purchasing Managers' Index (PMI) unexpectedly fell to 52.5 in February, as against the January reading of 52.7, the latest data published by Caixin showed on Tuesday, missing the forecast of 52.9. Further, Reuters reported, citing an official work report, China will target around 5.0% Gross Domestic Product (GDP) growth for 2024, almost the same as set last year.
Further, investors remain wary ahead of Fed Chairman Jerome Powell’s two-day Congressional testimony and the key employment data from the United States (US), digest the latest development on the US November 5 Presidential elections front. “The US Supreme Court handed Donald Trump a major victory on Monday as he campaigns to regain the presidency,” Reuters reported. Trump is the frontrunner for the Republican nomination to challenge Joe Biden
However, the US Dollar recovery appears elusive, as the US Treasury bond yields continue to struggle amid increased expectations of a US Federal Reserve (Fed) interest rate cut in June, especially after the business activity in the US manufacturing sector contracted at an accelerating pace in February. On Friday, the ISM Manufacturing PMI index dropped from 49.1 in January to 47.8 in February, missing the market expectation of 49.5 by a wide margin.
Markets are currently pricing in about a 30% chance that the Fed could begin easing rates in May, slightly higher than a 20% chance a week ago, according to the CME FedWatch Tool. For the June meeting, the probability of a rate cut now stands at about 67%.
The immediate focus now remains on the ISM Services PMI from the US, which will offer fresh impetus to Gold traders, as they keenly await Fed Chair Jerome Powell’s testimony on Wednesday for fresh insights on the timing and the scope of Fed rate cuts this year.
Gold price technical analysis: Daily– chart
As observed on the daily chart, Gold price is reverting toward the 23.6% Fibonacci Retracement (Fibo) level of the recent rally from the February 14 low of $1,984 to the three-month high of $2,120, aligned at $2,088.
The retreat in the Gold price could be attributed to the overbought conditions on the 14-day Relative Strength Index (RSI) indicator.
However, the bullish potential remains intact in Gold price, as the 21-day Simple Moving Average (SMA) is about to cross the 50-day SMA for the upside, portraying an impending Bull Cross.
Any pullback in Gold price could be seen as a good dip-buying opportunity for traders, as the all-time high of $2,144 remains in sight.
To the downside, strong support is pegged at the $2,100 threshold before the abovementioned 23.6% Fibo level at $2,088 is tested.
Acceptance below the latter is likely to trigger a fresh drop toward the 38.2% Fibo support at $2,068.
On the flip side, Gold buyers need to recapture the multi-month high at $2,120 on a sustained basis to take on the $2,130 round figure.
The next critical hurdle is seen at the record high of $2,144.
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.
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Author
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.
