Gold price eases from record high amid risk-on and stronger USD; up a little around $2,335

  • Gold price builds on the recent breakout momentum and touches a fresh record high on Monday.
  • Reduced bets for a June Fed rate cut underpin the USD and might cap gains amid the risk-on mood.
  • Dip-buying should limit any corrective slide ahead of the US CPI and the FOMC minutes this week.

Gold price (XAU/USD) eases from a fresh all-time peak, around the $2,354 area touched earlier this Monday, albeit manages to hold in the positive territory through the first half of the European session. This also marks the ninth day of a positive move in the previous ten and is sponsored by expectations that the Federal Reserve (Fed) will start cutting rates in 2024. Apart from this, buying from the Chinese central bank has been a significant driver of the precious metal's blowout rally over the past two weeks or so. That said, a generally positive tone around the equity markets, amid easing geopolitical tensions in the Middle East, keeps a lid on any further gains for the safe-haven metal amid extremely overstretched conditions on the daily chart.

Meanwhile, the US Dollar (USD) continues to draw support from Friday's upbeat US Nonfarm Payrolls (NFP) report, which forced investors to scale back their bets for more aggressive policy easing by the Federal Reserve (Fed). Adding to this, hawkish comments by Dallas Fed President Lorie Logan remain supportive of elevated US Treasury bond yields, which underpins the US Dollar (USD) and contributes to keeping a lid on the non-yielding Gold price. Traders also seem reluctant and prefer to wait for more cues about the Fed's rate-cut path before positioning for the next leg of a directional move. Hence, the focus will remain glued to this week's release of the US consumer inflation figures and the FOMC minutes on Wednesday. 

Daily Digest Market Movers: Gold price is capped by modest USD strength and positive risk tone

  • A buying spree by China’s central bank, along with expectations that lower US interest rates are on the horizon, pushed the Gold price to a fresh record high on the first day of a new week. 
  • Official data released Sunday showed that bullion held by the People’s Bank of China rose by 0.2% to 72.74 million troy ounces last month, marking the 17th consecutive month of increase.
  • The markets have been pricing in an even chance that the Federal Reserve (Fed) will start its rate-cutting cycle at the June policy meeting, which further benefits the non-yielding yellow metal.
  • The global risk sentiment got a boost after Israel withdrew more soldiers from southern Gaza and committed to fresh talks on a potential ceasefire, easing geopolitical tensions in the Middle East.
  • The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) increased by 303K in March vs the 200K expected and the previous month's downwardly revised reading. 
  • Other details of the publication showed that the Unemployment Rate edged lower to 3.8% from 3.9% in February amid a rise in the Labor Force Participation Rate to 62.7% from 62.5% previously.
  • The data forced investors to scale back their expectations for a total number of rate cuts in 2024 to two as against three rate cuts projected by the Fed, which pushes the US Treasury bond yields higher. 
  • The rate-sensitive two-year US government bond and the benchmark 10-year Treasury note surged to a four-month peak on Friday, underpinning the USD and capping gains for the commodity. 
  • Traders now look to the release of the US consumer inflation figures for March and the FOMC meeting minutes on Wednesday for cues about the Fed's rate-cut path and a fresh directional impetus. 

Technical Analysis: Gold price consolidates as bulls take breather amid overbought RSI on the daily chart

From a technical perspective, Friday's strong move up and acceptance above the $2,300 round-figure mark could be seen as a fresh trigger for bullish traders and support prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions. This, in turn, makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. Nevertheless, the setup suggests that the path of least resistance for the Gold price is to the upside, and any corrective decline might still be seen as a buying opportunity.

Meanwhile, the Asian session low, around the $2,305-2,300 area, now seems to protect the immediate downside ahead of Friday's swing low, around the $2,267-2,265 region. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $2,223-2,222 zone en route to the $2,200 mark. The latter should act as a strong base for the XAU/USD, which, if broken decisively, might shift the near-term bias in favor of bearish traders and pave the way for a further depreciating move.

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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