Gold price struggles to capitalize on its modest recovery gains, holds above $2,000 mark

  • Gold price attracts buyers on Thursday and snaps a two-day losing streak from over a one-month low.
  • A generally weaker risk tone offers some support to the safe-haven metal amid a modest USD downtick.
  • Diminishing odds for a March Fed rate cut to act as a tailwind for the buck and cap any further gains.

Gold price (XAU/USD) gains some positive traction on Thursday and for now, seems to have snapped a two-day losing streak to the $2,000 psychological mark, or over a one-month low touched the previous day. The precious metal sticks to its modest gains through the early European session amid the flight to safety, bolstered by geopolitical tensions and worries about a weak economic outlook for China. Apart from this, a modest US Dollar (USD) downtick turns out to be another factor benefitting the commodity, though the intraday uptick lacks bullish conviction.

The upbeat US Retail Sales released on Wednesday pointed to a resilient economy and gives the Federal Reserve (Fed) more headroom to keep interest rates higher for longer. This remains supportive of elevated US Treasury bond yields, which should act as a tailwind for the USD and cap any meaningful upside for the non-yielding Gold price. Hence, it will be prudent to wait for strong follow-through buying before confirming that the XAU/USD has bottomed out in the near term and positioning for further gains. Traders now look to the US economic docket, featuring Initial Jobless Claims, the Philly Fed Manufacturing Index and housing market data, and Atlanta President Raphael Bostic's speech for some impetus. 

Daily Digest Market Movers: Gold price maintains its bid tone amid risk-off, lacks follow-through buying

  • A modest US Dollar downtick, along with geopolitical tensions and China's economic woes, assists the Gold price in attracting some buyers in the vicinity of the $2,000 psychological mark on Thursday.
  • Yemen-based Houthi rebels claimed their second attack this week on a US-operated vessel in the Red Sea and have threatened to expand attacks in response to the American and British strikes.
  • Pakistan undertook series of military strikes against terrorist hideouts in Sistan-Baluchistan province of Iran and said that it will continue to take all necessary steps to safeguard its people.
  • China’s economy grew at an annual rate of 5.2% in the final quarter of 2023, more than the official 5% target, though investors remain concerned amid mounting deflationary risks and tepid demand.
  • Data released on Wednesday showed that the headline US Retail Sales increased more than anticipated, by 0.6% in December, while core sales – excluding autos – also topped market estimates.
  • The data points to still-resilient consumer spending and the underlying strength that the US economy possessed, which could provide the Fed more headroom to keep rates higher for longer.
  • Furthermore, Fed Governor Christopher Waller said on Tuesday that the central bank should not rush to cut interest rates until it was clear lower inflation would be sustained.
  • The yield on the benchmark 10-year US government bond holds comfortably above the 4% mark, near its highest level since December 13, and should lend some support to the Greenback.
  • Traders now look to Thursday's US economic docket – featuring the release of Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and housing market data – for a fresh impetus.

Technical Analysis: Gold price remains vulnerable below 50-day SMA pivotal support breakpoint

From a technical perspective, the overnight breakdown through the 50-day Simple Moving Average (SMA) pivotal support was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and are still far from being in the oversold territory. This, in turn, suggests that the path of least resistance for the Gold price is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out quickly near the $2,017-2,018 region (50-day SMA). That said, a sustained strength beyond might prompt some short-covering rally and lift the XAU/USD further towards the $2,042-2,045 horizontal resistance.

On the flip side, bearish traders might now wait for some follow-through selling below the $2,000 psychological mark before placing fresh bets. The Gold price might then accelerate the downfall towards the December monthly swing low, around the $1,974-1,973 region. The latter near the 100- and 200-day SMAs confluence, around the $1,970-1,964 area, which if broken decisively should pave the way for deeper losses. The XAU/USD might then weaken further towards the $1,955 intermediate support before eventually dropping to the November swing low, around the $1,932-1,931 region.

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 New Zealand Dollar.

USD   -0.12% -0.10% -0.10% -0.20% -0.06% -0.22% -0.05%
EUR 0.12%   0.00% 0.02% -0.08% 0.06% -0.10% 0.07%
GBP 0.12% 0.01%   0.02% -0.07% 0.07% -0.10% 0.08%
CAD 0.10% -0.02% -0.01%   -0.09% 0.03% -0.12% 0.06%
AUD 0.18% 0.08% 0.08% 0.09%   0.14% -0.03% 0.15%
JPY 0.06% -0.06% -0.06% -0.05% -0.14%   -0.18% 0.02%
NZD 0.24% 0.11% 0.12% 0.12% 0.03% 0.16%   0.18%
CHF 0.05% -0.07% -0.06% -0.06% -0.14% -0.02% -0.17%  

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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