Gold Price Forecast: XAU/USD set for bull-bear tug-of-war ahead of US jobs data, Fed verdict
- Gold price consolidates the previous rebound near $2,030 amid a weaker US Dollar.
- Risks of further geopolitical escalation counter falling March Fed rate cut bets.
- Gold price could stay rangebound due to mixed technical indicators, ahead of US jobs data.
Gold price is treading water near $2,030 early Tuesday, consolidating the previous rebound to a four-day high of $2,038. Gold price is weighing the further escalation in the geopolitical tensions between the Middle East and the United States (US) against the backdrop of reduced bets for a March Federal Reserve (Fed) interest rate cut.
Gold price looks to US JOLTs data for fresh impetus
Amidst the latest development on the Middle East and the US geopolitical conflict, Sky News reported that US President Joe Biden is likely to authorize military action in the Middle East as early as Monday night. This comes in response to the killing of three US service members by an unmanned aerial drone attack on forces stationed in northeastern Jordan near the Syrian border.
Markets stay risk-averse and trade with caution, as they also remain wary amid a deepening real estate crisis fuelled Chinese demand worries, after a Hong Kong court ordered the liquidation of property giant China Evergrande Group on Monday.
The traditional safe-haven, Gold price, draws support from these concerning factors alongside a broad-based US Dollar weakness and the extended selling in the US Treasury bond yields so far in Tuesday’s trading.
On Monday, Gold price staged a solid turnaround and hit multi-day highs above $2,030, capitalizing on a sell-off in the US Treasury bond yields, which limited the US Dollar upside. The US Treasury bond yields tumbled following a sharp rally in the US government bonds after the Treasury cut its first-quarter borrowing estimate. The Treasury Department said Monday it expects to borrow $760 billion in the first quarter, which is $55 billion lower than the October estimate. The decline was driven, in part, by "higher net fiscal flows" and a higher cash balance.
Intensifying Middle East geopolitical tensions also turned in favor of Gold price amid a global flight to safety theme.
Attention now turns toward the US JOLTs Job Openings data for fresh signs on the labor market conditions ahead of Wednesday’s Fed policy announcements and Friday’s Nonfarm Payrolls data release.
Markets are now pricing a 46% probability of a March Fed rate cut while no rate change is expected following this week’s policy meeting. However, comments from Fed Chair Jerome Powell will be closely scrutinized for repricing of the rate cut expectations, having a significant impact on the value of the US Dollar and the Gold price.
The Fed begins its two-day policy meeting on Tuesday, with the verdict likely to be announced on Wednesday.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price is managed to yield a daily closing above $2,030, the intersection of the 50-day Simple Moving Average (SMA) and the 21-day SMA.
Gold buyers, however, ran into static resistance near the $2,038 level, which capped the upside.
The 14-day Relative Strength Index (RSI) indicator recaptured the midline, providing much-needed support to Gold buyers.
But an impending Bear Cross continues to warrant caution for them, keeping the recovery in check.
The 21-day SMA is on the verge of crossing the 50-day SMA from above, which if happens will confirm the Bear Cross.
Acceptance above the $2,038 barrier will put the psychological $2,050 level back in play. Further up, Gold optimists will target the December 12 high of 2,062.
On the downside, an immediate cushion is seen at the previous day’s low of $2,018, below which the rising trendline support of $2,012 could be threatened.
The next strong downside cap is seen around the $2,000 region.
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
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.
