Gold price trims a part of its intraday gains amid a fresh leg up in US bond yields

  • Gold price regains positive traction on Tuesday, though struggles to build on the momentum.
  • Reduced bets for an early rate cut by the Fed should cap any meaningful appreciating move.
  • Geopolitical risks could lend some support to the safe-haven XAU/USD and help limit losses.

Gold price (XAU/USD) struggles to capitalize on its intraday positive move and remains below the $2,040-$2,042 supply zone through the first half of the European session on Tuesday. Expectations for the first rate cut by the Federal Reserve (Fed) have been pushed back to May in the wake of the incoming strong US macro data, which suggested that the economy is in good shape. This is reinforced by a fresh leg up in the US Treasury bond yields, which, in turn, is seen as a key factor acting as a headwind for the non-yielding yellow metal.

The downside, however, remains cushioned in the wake of the risk of a further escalation of geopolitical tensions in the Middle East, which tends to underpin the safe-haven Gold price. Furthermore, a modest US Dollar (USD) downfall to a one-week low, led by the post-Bank of Japan (BoJ) rise in the Japanese Yen (JPY), should keep a floor on the bullion. Traders might also prefer to wait for this week's key macro releases – the global flash PMIs on Wednesday, followed by the Advance US Q4 GDP and the US Core PCE Price Index on Thursday and Friday, respectively. 

Apart from this, the highly-anticipated European Central Bank (ECB) policy decision on Thursday might infuse some volatility in the markets and provide some meaningful impetus to the Gold price. In the meantime, Tuesday's release of the Richmond Manufacturing Index, along with the US bond yields, the USD price dynamics and the broader risk sentiment, could produce short-term trading opportunities. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the XAU/USD. 

Daily Digest Market Movers: Gold price lacks bullish conviction amidst bets for delayed Fed rate cut

  • The risk of a further escalation of conflicts in the Middle East, along with China's economic woes, assists the safe-haven Gold price to regain some positive traction on Tuesday.
  • The US and UK have conducted a fresh series of joint air strikes against the Iran-backed Houthis in Yemen, who have been targeting commercial vessels passing through the Red Sea.
  • Pakistan and Iran have decided to resolve their issues with diplomacy, while the Israel-Hamas conflict is threatening to erupt into a large-scale war and impact the global economy.
  • Investors continue to scale back their expectations for a more aggressive policy easing by the Federal Reserve in the wake of signs that the economy is still in good shape.
  • The current market pricing indicates a 40% chance of a March rate cut, down from as much as 80% a week ago, and five 25 bps rate reductions for 2024 as compared to six two weeks ago.
  • The yield on the benchmark 10-year US government bond holds just below the highest level since December touched last week and should acts as a tailwind for the US Dollar, capping the XAU/USD.
  • The Bank of Japan, as was widely expected, decided to maintain the status quo and leave its ultra-loose monetary policy settings unchanged at the end of the January meeting this Tuesday.
  • Traders now look to the European Central Bank (ECB) meeting, which, along with the global PMIs, the Advance US Q4 GDP and the US Core PCE Price Index, for a fresh directional impetus.

Technical Analysis: Gold price fails ahead of $2,040-2,042 supply zone, trims a part of modest intraday gains

From a technical perspective, any subsequent move up beyond the $2,030 area is likely to confront stiff resistance near the $2,040-2,042 supply zone. The latter should act as a key pivotal point, which if cleared decisively could trigger a short-covering rally. The Gold price might then climb to the $2,077 area before aiming to reclaim the $2,100 round-figure mark.

On the flip side, the overnight swing low, around the $2,017-2,016 region, now seems to protect the immediate downside ahead of the $2,000 psychological mark, or over a one-month low touched last week. A sustained break below the latter could make the Gold price vulnerable to accelerate the fall towards the $1,988 intermediate support. The downward trajectory could extend further towards the 100-day Simple Moving Average (SMA), currently around the $1,972 area and the 200-day SMA, near the $1,964-1,963 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 strongest against the Japanese Yen.

USD   -0.19% -0.16% -0.11% -0.36% -0.07% -0.34% -0.27%
EUR 0.17%   0.00% 0.05% -0.20% 0.09% -0.17% -0.11%
GBP 0.16% -0.01%   0.05% -0.20% 0.03% -0.17% -0.11%
CAD 0.11% -0.05% -0.05%   -0.24% 0.03% -0.23% -0.16%
AUD 0.35% 0.17% 0.19% 0.23%   0.28% 0.02% 0.09%
JPY 0.10% -0.07% -0.06% 0.00% -0.22%   -0.20% -0.16%
NZD 0.33% 0.16% 0.17% 0.22% -0.03% 0.20%   0.05%
CHF 0.26% 0.10% 0.11% 0.16% -0.08% 0.15% -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).

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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