Gold price climbs to near two-week high as USD selling remains unabated ahead of US PMI

  • Gold price attracts some haven flows in the wake of geopolitical tensions in the Middle East.
  • The USD dives to a fresh three-week low and provides an additional boost to the commodity.
  • Hawkish FOMC minutes remain supportive of elevated US bond yields and might cap gains.

Gold price (XAU/USD) climbs to a nearly two-week high during the first half of the European session on Thursday, with bulls now looking to build on the momentum beyond the 50-day Simple Moving Average (SMA) pivotal resistance. The US Dollar (USD) dives to its lowest level in almost three weeks in the absence of fresh hawkish signals from the FOMC meeting minutes and turns out to be a key factor benefitting the commodity. Apart from this, a further escalation of geopolitical tensions in the Middle East offers additional support to the safe-haven precious metal and remains supportive of the positive move.

That said, elevated US Treasury bond yields, bolstered by the growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer, might hold back traders from placing fresh bullish bets around the non-yielding Gold price. Apart from this, the risk-on impulse – as depicted by a generally positive tone around the equity markets – might further contribute to capping the upside for the precious metal. This makes it prudent to wait for sustained strength and acceptance above the 50-day SMA barrier before positioning for an extension of the recent goodish rebound from a two-month low.

Daily Digest Market Movers: Gold price continues scaling higher amid heavily offered tone surrounding the USD

  • The recent attacks by Yemen's Houthi rebels on commercial vessels in the Red Sea and Bab al-Mandab strait stoke worries about a further escalation of military action in the Middle East, underpinning the safe-haven Gold price.
  • The US Central Command said two anti-ship ballistic missiles were launched from the Iranian-backed Houthi terrorist group, which claims to support Palestinian civilians amid Israel’s retaliatory military campaign in the Gaza Strip.
  • Fighting between Israel and Hamas has shown no sign of abating despite diplomatic efforts by several countries, with the former warning of a potential ground invasion of Rafah where more than 1.5 million Palestinians are sheltering.
  • The US Dollar drops to lowest level in almost three weeks and lends additional support to the precious metal, though hawkish-sounding FOMC meeting minutes might keep a lid on any meaningful appreciating move.
  • The January FOMC meeting minutes revealed that policymakers agreed that they needed greater confidence in falling inflation before considering cutting rates and reinforced expectations that the Fed will keep rates higher for longer.
  • Market participants pushed back expectations on when the Fed will begin cutting rates to June, which, along with a weaker 20-year bond auction, push the yield on long-term US Treasury bonds higher across the board.
  • The yield on the benchmark 10-year US government bond advanced to its highest level since November 30, which should limit the downside for the Greenback and contributes to capping the non-yielding yellow metal.
  • Traders now look to the US economic docket – featuring the usual Weekly Initial Jobless Claims, the flash PMI prints and Existing Home Sales data – for some impetus ahead of Fed Governor Philip Jefferson's speech.

Technical Analysis: Gold price bulls look to seize near-term control above 50-day SMA pivotal resistance

From a technical perspective, bulls need to wait for sustained strength and acceptance above the 50-day SMA before positioning for any further gains. With oscillators on the daily chart just starting to gain positive traction, the Gold price might then accelerate the momentum towards an intermediate hurdle near the $2,044-2,045 region en route to the $2,065 supply zone.

On the flip side, the $2,020 area now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near just below the $2,000 psychological mark. Some follow-through selling will expose the monthly low, around the $1,984 region, before the Gold price eventually drops to challenge the very important 200-day SMA support near the $1,966-1,965 zone.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

USD   -0.38% -0.22% 0.05% -0.21% 0.19% -0.84% -0.19%
EUR 0.39%   0.16% 0.44% 0.17% 0.58% -0.45% 0.19%
GBP 0.22% -0.15%   0.27% 0.01% 0.42% -0.62% 0.01%
CAD -0.05% -0.43% -0.27%   -0.26% 0.15% -0.89% -0.25%
AUD 0.21% -0.16% -0.01% 0.26%   0.41% -0.63% 0.02%
JPY -0.19% -0.57% -0.40% -0.15% -0.41%   -1.04% -0.39%
NZD 0.84% 0.46% 0.61% 0.89% 0.62% 1.02%   0.64%
CHF 0.21% -0.17% -0.02% 0.26% -0.01% 0.39% -0.63%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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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