Gold price struggles to lure buyers amid uncertainty over the pace of Fed rate cuts

  • Gold price edges higher on Wednesday amid subdued US Dollar price action. 
  • Despite the warmer US CPI report, June Fed rate cut bets undermine the buck.
  • Geopolitical risks stemming from conflicts in the Middle East also lend support.

Gold price (XAU/USD) trades with a mild positive bias through the first half of the European session on Tuesday, albeit lacks follow-through and remains close to the weekly low, around the $2,150 area touched the previous day. The uncertainty over the Federal Reserve's (Fed) rate-cut path turns out to be a key factor that is holding back traders from placing fresh directional bets around the non-yielding yellow metal. Meanwhile, the warmer-than-expected US consumer inflation data on Tuesday fuelled speculations that the Fed might stick to its higher for longer narrative in the near term. This, along with the underlying strong bullish sentiment across the global equity markets, acts as a headwind for the precious metal. 

The markets, however, are still pricing in a greater chance that the US central bank will start cutting interest rates in June. This is reinforced by a softer tone around the US Treasury bond yields, which keeps the US Dollar (USD) bulls on the defensive and acts as a tailwind for the Gold price. Traders also seem reluctant and might prefer to wait on the sidelines ahead of the highly-anticipated two-day FOMC meeting starting next Tuesday. In the meantime, traders will take cues from the release of the US Retail Sales and the Producer Price Index (PPI) on Thursday. Nevertheless, the fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for the resumption of a two-week-old uptrend. 

Daily Digest Market Movers: Gold price bulls now seek clarity about the Fed's rate-cut path before placing fresh bets

  • A hot US inflation report fuelled speculations that the Federal Reserve may delay interest rate cuts and pushed the US Treasury bond yields, underpinning the US Dollar and weighing on the Gold price on Tuesday.
  • The headline US Consumer Price Index (CPI) rose by the 3.2% YoY rate in February from the 3.1% previous and expected, while the annual Core CPI came in at 3.8%, slightly above estimates for a reading of 3.7%.
  • According to the CME Group's FedWatch tool, the markets are still pricing in around a 70% chance that the US central bank will cut interest rates in June, which caps the USD and limits losses for the XAU/USD.
  • A Qatari official said on Tuesday that Israel and Hamas are not close to a deal to halt the fighting in Gaza and free hostages, and warned that the situation remained very complicated despite weeks of truce talks.
  • Iran-aligned Houthi rebels in Yemen said that they would escalate their military operations during the Muslim holy month of Ramadan in solidarity with Palestinians and response to the ongoing war in Gaza.
  • The United States conducted six self-defence strikes, destroying an unmanned underwater vessel and 18 anti-ship missiles in retaliation to the two anti-ship ballistic missiles fired into the Red Sea by the Houthis.
  • This should help limit the downside for the safe-haven precious metal as traders look to next week's highly anticipated FOMC meeting for cues about the rate-cut path and before placing fresh directional bets.

Technical Analysis: Gold price could extend the sideways consolidative price move amid overbought RSI on the daily chart

From a technical perspective, the overnight swing low, around the $2,150 area, now seems to protect the immediate downside. Against the backdrop of the overbought Relative Strength Index (RSI) on the daily chart, a convincing break below might prompt some technical selling and drag the Gold price to the next relevant support near the $2,128-2,127 zone. The subsequent slide might expose the $2,100 round figure, which should act as a strong base for the XAU/USD and a key pivotal point for short-term traders.

On the flip side, any further move up is likely to face some resistance around the $2,174-2,175 region ahead of the $2,195 area, or the record peak touched last Friday. Some follow-through buying beyond the $2,200 mark will push the Gold price to the uncharted territory and set the stage for the resumption of the recent blowout rally witnessed over the past two weeks or so.

US Dollar price today

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

USD   0.02% 0.02% 0.03% -0.03% -0.19% -0.11% 0.03%
EUR -0.02%   0.00% 0.01% -0.05% -0.21% -0.14% 0.01%
GBP -0.02% 0.00%   0.01% -0.04% -0.21% -0.12% 0.01%
CAD -0.03% -0.01% -0.01%   -0.06% -0.22% -0.13% 0.00%
AUD 0.04% 0.05% 0.03% 0.06%   -0.17% -0.10% 0.03%
JPY 0.19% 0.22% 0.22% 0.22% 0.20%   0.07% 0.22%
NZD 0.11% 0.12% 0.12% 0.13% 0.08% -0.08%   0.15%
CHF -0.04% -0.01% -0.01% 0.00% -0.04% -0.21% -0.15%  

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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