Gold price eases from one-month top, corrective decline is likely to remain limited

  • Gold price ticks lower amid elevated US bond yields and the prevalent risk-on mood. 
  • The downside seems limited amid bets for an imminent Fed rate cut later this year.
  • Thursday’s sustained breakout through the $2,040-2,042 hurdle favours bullish traders.

Gold price (XAU/USD) ticks lower following an intraday uptick back closer to a one-month top touched the previous day and slides closer to the $2,042-2,040 resistance break point during the early European session on Friday. Growing acceptance that the Federal Reserve (Fed) will wait until the June policy meeting before lowering borrowing costs remains supportive of elevated US Treasury bond yields. This, along with the prevalent risk-on environment, turns out to be a key factor exerting some downward pressure on the non-yielding yellow metal. 

The downside for the Gold price, meanwhile, seems cushioned in the wake of rising bets for an eventual rate cut by the Fed, bolstered by signs of easing inflation in the US. Nevertheless, the XAU/USD seems poised to post gains for the second straight week as investors look to key US macro data scheduled at the start of a new month, starting with the ISM Manufacturing PMI later today. Friday's US economic docket also features the revised Michigan Consumer Sentiment Index, which, along with Fed Speaks, should provide some impetus to the XAU/USD. 

Daily Digest Market Movers: Gold price loses traction amid elevated US bond yields and risk-on mood

  • The US inflation data came in line with market expectations, suggesting that the Federal Reserve is going to stay on track to cut interest rates later this year and lending some support to the Gold price.
  • The Core US PCE Price Index – the Fed's preferred inflation gauge that excludes food and energy prices – climbed 0.4% in January and the yearly rate eased to 2.4% from 2.6% in the previous month.
  • Meanwhile, the CME Group's FedWatch Tool indicates that markets are still pricing in the possibility of the first interest rate cut in June and the bets were reaffirmed by comments by several Fed officials.
  • Atlanta Fed President Raphael Bostic said that the speed at which US inflation is easing means it will likely be appropriate for the US central bank to start cutting interest rates during the summertime.
  • San Francisco Fed President Mary Daly said central bank officials are ready to lower interest rates as needed but emphasized there is no urgent need to do so given the strength of the US economy.
  • Cleveland Fed President Loretta Mester said the recent inflation data suggests that policymakers have more work to do to cool price pressures but didn't change her view for three rate cuts this year.
  • New York Fed President John Williams reiterated that the next move for the US central bank is likely to be cut to its interest rate target, though noted there is no sense of urgency to do that.
  • The US Treasury bond yields aren’t far from their recent highs, which, along with an extension of the risk-on rally across the global equity markets, keeps a lid on further gains for the safe-haven XAU/USD.

Technical analysis: Gold price bulls have the upper hand while above $2,040 resistance breakpoint

From a technical perspective, the overnight breakout through the $2,040-2,042 horizontal resistance was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and support prospects for an extension of the recent goodish rebound from the YTD low, around the $1,984 region touched in February. Hence, a subsequent strength towards the next relevant hurdle near the $2,065 region, en route to the $2,100 round figure, looks like a distinct possibility.

On the flip side, weakness back below the $2,040-2,042 resistance-turned-support might now be seen as a buying opportunity and is more likely to find decent support near the $2,025-2,024 area, or the weekly low. This is followed by the 100-day Simple Moving Average (SMA), currently near the $2,014 region. This is followed by the $2,000 psychological mark, which if broken might shift the near-term bias in favour of bearish traders and drag the Gold price to the $1,984 support en route to the very important 200-day SMA, near the $1,969-1,968 zone.

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 Euro.

USD   -0.11% -0.08% 0.11% 0.01% 0.33% -0.03% 0.18%
EUR 0.11%   0.03% 0.20% 0.12% 0.45% 0.07% 0.29%
GBP 0.08% -0.02%   0.18% 0.10% 0.42% 0.05% 0.29%
CAD -0.10% -0.20% -0.18%   -0.07% 0.25% -0.12% 0.09%
AUD -0.01% -0.12% -0.10% 0.08%   0.33% -0.05% 0.18%
JPY -0.33% -0.44% -0.40% -0.23% -0.30%   -0.35% -0.12%
NZD 0.03% -0.08% -0.05% 0.14% 0.04% 0.36%   0.21%
CHF -0.20% -0.31% -0.28% -0.11% -0.19% 0.14% -0.24%  

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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