Gold Price Forecast: XAU/USD set to extend its struggle around $2,030
- Gold price is consolidating the Tuesday turnaround early Wednesday.
- US Dollar, Treasury bond yields keep the red amid Chinese stimulus optimism.
- Daily technical setup points to range trade for Gold price at around $2,030.
Gold price is consolidating the solid rebound from the weekly low of $2,015 early Wednesday. The US Dollar (USD) extends its pullback from multi-month highs, in the wake of retreating US Treasury bond yields and a risk-friendly market environment, motivating Gold buyers to gather pace before the next push higher.
Gold buyers pause ahead of more Fedspeak
Risk sentiment remains in a sweeter spot so far this Wednesday’s trading, as investors cheer a raft of measures by the Chinese regulator to support share prices after the market plunged to five-year lows.
Markets are paying limited attention to the reduced bets for aggressive rate cuts from the US Federal Reserve (Fed) coupled with strong US economic data and hawkish Fedspeak, as the US Dollar is bearing the brunt of the broader market optimism and negative US Treasury bond yields.
The US Treasury bond yields are extending their pullback, as markets anticipate a big auction of the US 10-year Treasury bonds later on Wednesday. These factors are helping Gold price stay afloat.
Amid a lack of top-tier economic data releases from the United States (US), the focus will continue to remain on the Fedspeak, sentiment on Wall Street and developments in the Chinese markets. Traders look forward to Chinese inflation data due this Thursday for fresh signs on the state of the economy. Fed policymakers Barkin, Bowman and Kugler are expected to speak in the latter part of the day.
On Tuesday, Philadelphia Fed President Patrick Harker said that the "economy is on track for a soft landing.”
Markets are currently pricing in a roughly 20% chance of a cut in March, the CME Group's FedWatch Tool shows, compared with a 68.1% probability at the start of the year. Meanwhile, the odds for a May Fed rate cut now stand at 65%.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price has been struggling around the $2,030-$2,035 region. That level is the confluence of the 21-day and 50-day Simple Moving Averages (SMA).
The 14-day Relative Strength Index (RSI) is trading neutral at the 50 level, suggesting a lack of clear directional bias for Gold price.
If the rebound finds legs, the immediate powerful resistance for Gold price is seen at the $2,050 psychological level. The next critical supply zone for the bright metal is seen at around $2,065.
On the downside, Gold sellers need to seek a decisive close below the abovementioned $2,035-$2,030 area. Further down, a test of the $2,000 threshold if the $2,010 round figure gives way.
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.
