Gold price sticks to gains near all-time high amid softer risk tone, despite stronger USD


  • Gold price trades with a positive bias for the sixth straight day and stands tall near the all-time peak.
  • The cautious market mood, along with geopolitical risks, lends support to the safe-haven XAU/USD.
  • Reduced June Fed rate cut bets continue to underpin the USD and might act as a headwind for the metal.

Gold price (XAU/USD) attracts some buyers for the sixth straight day on Tuesday and remains well within the striking distance of the all-time peak, around the $2,265-$2,266 area touched the previous day. The upbeat US manufacturing data released on Monday raised doubts over whether the Federal Reserve (Fed) will cut interest rates three times this year. This, along with the risk of a further escalation of geopolitical tensions in the Middle East, tempers investors' appetite for riskier assets and acts as a tailwind for the safe-haven precious metal. 

Meanwhile, the markets are now pricing in a total of 69 basis points (bps) rate cut for 2024, lower than the Fed's projected 75 bps. This remains supportive of elevated US Treasury bond yields and lifts the US Dollar (USD) to its highest level since February 14, which, in turn, might cap gains for the non-yielding Gold price. Bulls might also prefer to wait for some near-term consolidation amid overstretched conditions on the daily chart, ahead of the US macro data and speeches by influential FOMC members later during the North American session.

Daily Digest Market Movers: Gold price bulls not ready to give up yet despite reduced Fed rate cut bets

  • The Institute for Supply Management reported that the US manufacturing sector expanded in March after 16 straight months of contraction, forcing investors to trim their bets for a June rate cut by the Federal Reserve.
  • The shift in expectations lifts the yield on the rate-sensitive two-year and the benchmark 10-year US government bonds to a two-week peak, which underpins the US Dollar and exerts some pressure on the Gold price.
  • A sharp rise in the US Treasury bond yields, along with the risk of a further escalation of geopolitical tensions in the Middle East, tempers investors' appetite for riskier assets and lends support to the safe-haven XAU/USD.
  • Israeli air strikes destroyed the Iranian embassy's consular annex in Syria on Monday, killing seven members, including a top Revolutionary Guard commander, and fuelling fears of further violence between Israel and Iran's allies.
  • Moreover, the US PCE Price Index released on Friday indicated a moderate rise in inflation during February and kept Fed rate cut hopes on the table, which should contribute to limiting the downside for the non-yielding metal.
  • Tuesday's US economic docket features the release of JOLTS Job Openings and Factory Orders, which, along with speeches by a slew of influential FOMC members, should drive the USD demand and provide a fresh impetus.

Technical Analysis: Gold price stands tall near all-time peak, overbought RSI warrants caution for bulls

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions, which makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. That said, any meaningful corrective decline is more likely to find decent support and attract fresh buyers near the $2,223 region, or the previous record high. This should help limit the downside near the $2,200 mark, which should now act as a key pivotal point for the Gold price. A convincing break below the latter might prompt some technical selling and pave the way for deeper losses.

On the flip side, the $2,265-2,266 region, or a fresh record peak touched on Monday, now seems to act as an immediate hurdle for the Gold price. A sustained strength beyond should allow the XAU/USD to prolong its appreciating move further towards conquering the $2,300 round-figure mark.

 

Gold FAQs

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.

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.

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.

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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