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Gold price languishes near weekly trough, 50-day holds the key for bulls

  • Gold price drops to a fresh weekly low amid the underlying bullish tone surrounding the USD.
  • Reduced bets for a March Fed rate cut push the US bond yields higher and underpin the buck.
  • The geopolitical risks and China’s economic woes limit the downside for the safe-haven metal.

Gold price (XAU/USD) drops to a fresh weekly low on Wednesday, albeit manages to defend and bounce off the 50-day Simple Moving Average (SMA) support during the early European session. The precious metal, however, keeps the red for the second straight day amid reduced bets for an early interest rate cut by the Federal Reserve (Fed). This remains supportive of elevated US Treasury bond yields and lifts the US Dollar (USD) to its highest level since December 13, which, in turn, is seen undermining the non-yielding yellow metal. 

That said, geopolitical tensions, along with rather unimpressive economic growth figures from China, lend some support to the safe-haven Gold price and help limit deeper losses. This, in turn, makes it prudent to wait for a sustained breakdown through the aforementioned support before placing fresh bearish bets around the XAU/USD. Market participants now look to the US economic docket, featuring the release of monthly Retail Sales and Industrial Production figures. Apart from this, Fedspeaks will influence the USD and provide some impetus to the precious metal. 

Daily Digest Market Movers: Gold price falls on Fed rate cut uncertainty, a softer risk tone limits losses

  • Federal Reserve (Fed) Governor Christopher Waller's remarks on Tuesday further tempered expectations for a March rate cut and act as a headwind for the non-yielding Gold price.
  • Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
  • The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, underpinning the US Dollar and capping the non-yielding yellow metal.
  • The risk of a further escalation of tensions in the Middle East does little to provide any respite to the safe-haven XAU/USD or impress bullish traders.
  • In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
  • The official data released by the National Bureau of Statistics (NBS) showed that China’s economy grew at an annual rate of 5.2% in the final quarter of 2023.
  • On a quarterly basis, Chinese GDP expanded by 1.0% in Q3 vs. 1.0% expected, while December Retail Sales and Industrial Production rose by 7.4% YoY and 6.8% YoY, respectively.
  • Following the release of the high-impact data, the NBS noted that China's economy faces a complex external environment and low consumer prices reflect insufficient domestic demand.
  • The geopolitical risks, along with China's economic woes, might hold back traders from placing aggressive bearish bets around the metal and help limit any further losses.
  • Traders now look to the US macro data, which is expected to show that monthly Retail Sales grew by 0.4% in December and Industrial Production remained flat.
  • Apart from this, scheduled speeches by Fed Governors Michael Barr and Michelle Bowman might influence the USD and provide some impetus to the commodity.

Technical Analysis: Gold price finds some support near 50-day SMA, not out of the woods yet

From a technical perspective, the 50-day SMA, currently around the $2,017 area, followed by the $2,013 region, or the monthly low, could protect the immediate downside ahead of the $2,000 psychological mark. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price towards the December swing low, around the $1,973 zone. The XAU/USD could eventually drop to the $1,969-1,963 confluence, comprising the 100- and 200-day SMAs.

On the flip side, the $2,040-2,045 region now seems to act as an immediate strong barrier ahead of the $2,061-2,062 supply zone. Some follow-through buying has the potential to lift the Gold price further towards the $2,077 area, which if cleared decisively will negate any near-term negative bias. Bullish traders might then aim towards reclaiming the $2,100 psychological mark.

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 weakest against the Canadian Dollar.

 USDEURGBPCADAUDJPYNZDCHF
USD 0.71%0.92%0.65%1.77%1.51%1.59%1.04%
EUR-0.72% 0.21%-0.07%1.06%0.79%0.88%0.31%
GBP-0.94%-0.20% -0.28%0.85%0.59%0.68%0.12%
CAD-0.66%0.07%0.28% 1.11%0.86%0.94%0.39%
AUD-1.80%-1.06%-0.85%-1.13% -0.26%-0.17%-0.74%
JPY-1.53%-0.81%-0.72%-0.87%0.26% 0.09%-0.48%
NZD-1.62%-0.89%-0.69%-0.96%0.17%-0.09% -0.57%
CHF-1.04%-0.31%-0.12%-0.39%0.74%0.47%0.56% 

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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