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Gold price edges higher on softer US Dollar, lacks follow-through ahead of critical US data

  • Gold price reverses an intraday dip amid geopolitical tensions, reiterating US bond yields and a softer USD. 
  • Reduced bets for an early interest rate cut by the Fed to limit the USD losses and cap the upside for the metal. 
  • Traders might also refrain from placing aggressive directional bets ahead of this week's key US macro data.

Gold price (XAU/USD) attracts some buying during the early European session and turns positive for the second successive day on Wednesday, albeit lacks follow-through and remains in a multi-day-old trading range below the $2,040-$2,042 zone. Traders pushed back their expectations for the first interest rate cut by the Federal Reserve (Fed) to May from March in the wake of a still-resilient US economy. This, along with the underlying bullish tone around the equity markets, turns out to be a key factor acting as a headwind for the non-yielding yellow metal. 

That said, persistent worries about a further escalation of military action in the Middle East and the uncertain global economic outlook continue to lend some support to the safe-haven Gold price. Furthermore, reiterating US Treasury bond yields keeps the US Dollar (USD) bulls on the defensive and benefits the commodity. Traders, however, seem reluctant to place aggressive directional bets and prefer to wait for this week's important US macro releases – the Advance Q4 GDP print on Thursday and the Core PCE Price Index – the Fed's preferred inflation gauge – on Friday. 

Daily Digest Market Movers: Gold price fails to builds on modest gains amid delayed Fed rate-cut bets

  • Retreating US Treasury bond yields keep the US Dollar (USD) bulls on the defensive and turn out to be a key factor lending some support to the Gold price amid geopolitical tensions in the Middle East.
  • US military forces struck 3 facilities used by Iranian-affiliated militant groups in western Iraq in direct response to a series of escalatory attacks, raising the risk of a further escalation of tensions in the Middle East.
  • The incoming US macro data suggested that the economy is in good shape and gives the Federal Reserve more headroom to keep interest rates higher for longer, which should cap the non-yielding bullion.
  • The current market pricing indicates a greater chance of the first interest rate cut by the Fed in May, which was initially expected in March, and less aggressive policy easing than is now anticipated by investors.
  • The lack of strong follow-through buying warrants caution for bulls ahead of this week's key macro releases – the flash global PMIs, the Advance US Q4 GDP print and the US Core PCE Price Index.
  • The crucial US inflation data will influence expectations about the Fed's future policy actions, which, in turn, will drive the USD demand and determine the near-term trajectory for the XAU/USD.

Technical Analysis: Gold price might continue to face stiff resistance near the $2,040-2,042 supply zone

From a technical perspective, the $2,022-2,020 region might offer some support to the Gold price ahead of the weekly trough, around the $2,017-2,016 zone touched on Monday. This is followed by over a one-month low, around the $2,000 psychological mark set last week, which if broken decisively will be seen as a fresh trigger for bearish traders. The XAU/USD might then turn vulnerable to accelerate the fall towards the $1,988 intermediate support before eventually dropping to the 100-day Simple Moving Average (SMA), currently around the $1,972 area, en route to and the 200-day SMA, near the $1,964-1,963 region.

On the flip side, any meaningful strength beyond the $2,029-2,030 immediate hurdle might continue to confront stiff resistance near the $2,040-2,042 supply zone. Some follow-through buying, however, might negate the near-term bearish outlook and trigger a short-covering rally. The Gold price might then climb to the $2,077 area before aiming to reclaim the $2,100 round-figure mark.

US Dollar price today

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

 USDEURGBPCADAUDJPYNZDCHF
USD -0.02%-0.06%0.11%0.19%-0.25%0.09%-0.01%
EUR0.02% -0.04%0.13%0.18%-0.22%0.10%0.01%
GBP0.07%0.04% 0.17%0.23%-0.18%0.14%0.05%
CAD-0.12%-0.10%-0.17% 0.06%-0.36%-0.03%-0.12%
AUD-0.18%-0.18%-0.23%-0.07% -0.38%-0.11%-0.19%
JPY0.24%0.22%0.19%0.34%0.44% 0.31%0.23%
NZD-0.07%-0.11%-0.15%0.02%0.10%-0.31% -0.10%
CHF-0.01%-0.03%-0.07%0.13%0.22%-0.23%0.08% 

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.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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