Gold price climbs to fresh YTD top; overbought RSI warrant caution for bulls

  • Gold price reverses an intraday dip and climbs to a fresh multi-month top on Tuesday.
  • A slight deterioration in the global risk sentiment acts as a tailwind for the commodity. 
  • Bets for a June Fed rate cut keep the USD bulls on the defensive and also lend support.

Gold price (XAU/USD) turns positive for the fifth straight day on Tuesday and touches a fresh three-month peak, around the $2,120 region during the first half of the European session. Any further appreciating move, however, seems elusive as traders might prefer to wait for more cues about the Federal Reserve's (Fed) rate-cut path. Hence, the focus will remain glued to Fed Chair Jerome Powell's two-day congressional testimony starting on Wednesday. Apart from this, US macro data scheduled at the beginning of a new month, including the closely-watched monthly employment data, or the Nonfarm Payrolls (NFP) report on Friday, will influence the US Dollar (USD) and provide a fresh impetus to the metal. 

In the meantime, growing acceptance that the Fed will start cutting rates in June keeps the USD bulls on the defensive and lends support to the non-yielding Gold price. Meanwhile, persistent geopolitical tensions and concerns about a slowdown in China temper investors' appetite for riskier assets. This is evident from a generally weaker tone around the equity markets, which is seen as another factor lending support to the safe-haven XAU/USD. Traders now look to the US ISM Services PMI to grab short-term opportunities. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the Gold price is to the upside and any corrective slide is more likely to get bought into. 

Daily digest market movers: Gold price bulls might pause ahead of this week's key data/event risks

  • Friday's disappointing US macro data, along with less hawkish comments by Federal Reserve officials, reaffirmed bets for a June rate cut and lifted the Gold price above the $2,100 mark on Monday.
  • The US Dollar, meanwhile, remain on the defensive amid firming expectations for an imminent shift in the Fed's policy stance, which, along with geopolitical risks, benefit the safe-haven metal.
  • Israel conducted a counter-terrorism operation – the biggest in years – in the Palestinian administrative capital of Ramallah, raising the risk of a further escalation of tensions in the Middle East.
  • Investors look to Fed Chair Jerome Powell's two-day testimony for more cues on the path of interest rates and important US macro data to determine the next leg of a directional move for the XAU/USD.
  • A rather busy week kicks off with the release of the US ISM Services PMI later this Tuesday, though the focus will remain glued to the closely watched US Nonfarm Payrolls (NFP) report on Friday.
  • China’s Premier Li Qiang delivered the opening remarks at the National People's Congress (NPC) annual meeting on Tuesday and said that the foundation of economic recovery is not solid yet.
  • Earlier Reuters reported, citing an official work report, that China will target around 5% GDP growth for 2024, though it fails to boost investors' confidence or provide any impetus to the XAU/USD.

Technical Analysis: Gold price needs to consolidate amid overbought RSI on the daily chart

From a technical perspective, the overnight strong move-up reaffirmed last week's breakout through the $2,062-2,064 strong horizontal barrier and support prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is already flashing overbought conditions and makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. Nevertheless, the Gold price remains on track to surpass the $2,020-2,025 intermediate hurdle and aim to retest the all-time peak, around the $2,144-2,145 zone touched early December.

On the flip side, the $2,100 round figure now seems to protect the immediate downside. Any subsequent decline might now be seen as a buying opportunity and remain limited near the aforementioned resistance breakpoint, now turned support, near the $2,064-2,062 region. That said, a convincing break below the latter might prompt some technical selling and drag the Gold price further towards the 50-day Simple Moving Average (SMA), currently pegged near the $2,037-2,035 region. The corrective slide could extend further towards the $2,020 area or the 100-day SMA.

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 Swiss Franc.

USD   0.00% 0.00% 0.02% 0.03% -0.01% 0.02% -0.05%
EUR -0.01%   0.01% 0.01% 0.01% 0.00% -0.01% -0.03%
GBP 0.01% 0.00%   0.03% 0.02% 0.00% 0.03% -0.02%
CAD -0.02% -0.03% -0.03%   -0.03% -0.03% -0.02% -0.05%
AUD -0.04% -0.02% -0.03% 0.00%   -0.02% -0.02% -0.05%
JPY 0.01% 0.02% -0.02% 0.04% 0.00%   0.03% -0.03%
NZD -0.03% -0.02% -0.04% -0.01% 0.01% -0.04%   -0.03%
CHF 0.04% 0.03% 0.03% 0.06% 0.07% 0.03% 0.06%  

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).

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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