- Gold price extends the overnight rejection slide from the 50-day SMA resistance.
- The Fed’s outlook of fewer rate cuts this year is seen weighing on the commodity.
- Traders now look to the US PPI and Initial Jobless Claims for short-term impetus.
Gold price (XAU/USD) meets with a fresh supply during the early European session on Thursday and for now, seems to have snapped a three-day winning streak to a fresh weekly peak, around the $2,341-2,342 region touched the previous day. The Federal Reserve's (Fed) hawkish surprise on Wednesday, to a larger extent, overshadowed softer US consumer inflation figures. In fact, policymakers now see just one rate cut in 2024 as compared to three projected in March, which, in turn, is seen as a key factor driving flows away from the non-yielding yellow metal.
Meanwhile, the shift in the Fed's projections push the US Treasury bond yields and assist the US Dollar to build on the overnight bounce from a multi-day low. This further seems to undermine the US Dollar-denominated Gold price, though geopolitical tension in the Middle East and renewed political uncertainty in Europe could help limit deeper losses. Market participants now look forward to Thursday's US economic docket – featuring the Producer Price Index (PPI) and Weekly Initial Jobless Claims data – for short-term trading opportunities.
Daily Digest Market Movers: Gold price turns vulnerable as reduced Fed rate cut bets boost USD
- The initial market reaction to the softer US consumer inflation data on Wednesday faded rather quickly after the Federal Reserve said that it sees only one rate cut this year, which, in turn, is seen undermining the non-yielding Gold price.
- The US Bureau of Labor Statistics (BLS) reported that inflation, as measured by the change in the Consumer Price Index (CPI), was unchanged in May for the first time since last June, and the yearly rate edged down to 3.3% from 3.4%.
- The annual core CPI, which excludes volatile food and energy prices, was up 0.2% during the reported month and rose 3.4% on a yearly basis as compared to the 3.6% increase in April and consensus estimates for a reading of 3.5%.
- The Fed kept interest rates unchanged at the end of a two-day policy meeting and projected the benchmark rate falling to 5.1% this year, suggesting just one rate cut in 2024 as against a prior estimate of three cuts at the March meeting.
- Adding to this, the Fed lifted its forecast on the neutral rate to 2.8% from 2.6% previously, providing a modest lift to the US Dollar and contributing to driving flows away from the USD-denominated commodity.
- French President Emmanuel Macron's decision to call snap elections later this month increased political uncertainty in the Eurozone's second-biggest economy and could lend support to the safe-haven precious metal.
- Thursday's US macro data could produce short-term trading opportunities later during the early North American session ahead of the Bank of Japan (BoJ) policy decision on Friday, which could infuse volatility in the market.
Technical Analysis: Gold price needs to break through the $2,285 support for bears to seize control
From a technical perspective, the overnight failure near the 50-day SMA support-turned-resistance and the subsequent slide favors bearish traders. Moreover, oscillators on the daily chart are holding in negative territory and support prospects for a further depreciating move for the Gold price. That said, any further decline is likely to find some support near the $2,300 mark ahead of the $2,285 horizontal zone. Some follow-through selling will be seen as a fresh trigger for bearish traders and make the XAU/USD vulnerable to accelerate the fall towards the next relevant support near the $2,254-2,253 region. The downward trajectory could extend further towards the $2,225-2,220 area en route to the $2,200 round figure.
On the flip side, any strength beyond the $2,325 hurdle might continue to attract fresh sellers and remain capped near the 50-day SMA support breakpoint, currently pegged near the $2,345 region. This is followed by the $2,360-2,362 supply zone, which, if cleared decisively, should allow the Gold price to retest last week’s swing high, around the $2,387-2,388 area and aim to reclaim the $2,400 mark. A sustained strength beyond the latter will negate any near-term negative bias and pave the way for some meaningful appreciating move in the near term.
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 | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.25% | -0.41% | -0.11% | -0.97% | 0.24% | -1.04% | -0.08% | |
| EUR | 0.25% | -0.16% | 0.13% | -0.73% | 0.48% | -0.79% | 0.17% | |
| GBP | 0.40% | 0.16% | 0.29% | -0.56% | 0.65% | -0.64% | 0.34% | |
| CAD | 0.11% | -0.13% | -0.30% | -0.86% | 0.37% | -0.93% | 0.03% | |
| AUD | 0.98% | 0.75% | 0.58% | 0.85% | 1.20% | -0.07% | 0.89% | |
| JPY | -0.24% | -0.47% | -0.64% | -0.33% | -1.23% | -1.28% | -0.32% | |
| NZD | 1.03% | 0.78% | 0.62% | 0.92% | 0.07% | 1.27% | 0.91% | |
| CHF | 0.08% | -0.17% | -0.33% | -0.03% | -0.89% | 0.32% | -0.97% |
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
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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