Gold price trades with negative bias below all-time high, eyes US data for fresh impetus

  • Gold price reterats from a new all-time peak on Wednesday, though the downside seems limited. 
  • Reduced bets for a June Fed rate cut act as a tailwind for the USD and cap gains for the metal.
  • Rising geopolitical tensions in the Middle East should limit the downside for the XAU/USD.

Gold price (XAU/USD) pulls back after hitting a fresh record high earlier this Wednesday and remains on the defensive through the first half of the European session. The incoming stronger US macro data pointed to a resilient economy and raised doubts over whether the Federal Reserve (Fed) will cut interest rates three times this year. The shift in outlook keeps the US Treasury bond yields elevated and prompts some profit-taking around the non-yielding yellow metal, especially after the recent strong runup witnessed over the past week or so.

Any meaningful corrective decline for the Gold price, however, seems elusive in the wake of geopolitical risks stemming from the protracted Russia-Ukraine war and the risk of a widening of the Israel-Hamas conflict to the broader Middle East region. This, along with the uncertainty over the Fed's plans to cut rates and a devastating earthquake in Taiwan, should act as a tailwind for the safe-haven precious metal amid a modest US Dollar (USD) downtick. Traders now look to the US macro data and speeches by Fed officials, for a fresh impetus. 

Daily Digest Market Movers: Gold price might continue to draw support from geopolitical risks

  • Geopolitical tensions ratcheted up after Israeli strikes on Iran's embassy in Syria, raising the risk of a further escalation of conflict in the Middle East and lifting the safe-haven Gold price to a fresh record peak on Wednesday.
  • Data released this week showed that the US manufacturing sector expanded in March for the first time since September 2022 and that demand for labor remains elevated, forcing investors to trim their bets for rate cuts in the US.
  • The Labor Department published the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday, which showed that job openings rose modestly from 8.75 million and stayed at a historically high level of 8.76 million in February.
  • Separately, the Commerce Department reported that orders for manufactured goods rebounded in February after two straight monthly declines and rose more than expected by 1.4% amid demand for machinery and commercial aircraft.
  • San Francisco Fed President Mary Daly noted on Tuesday that inflation is gradually decreasing, though she feels no urgency to lower interest rates, and that three rate cuts this year is a projection, not a promise.
  • Cleveland President Loretta Mester said that substantial progress has been made on inflation, though she wants to see more evidence that inflation is headed towards the 2% target before cutting interest rates.
  • This comes on the back of Fed Chair Jerome Powell's remarks on Friday, saying that there was no need to be in a hurry to cut interest rates and raised doubts if the central bank will cut rates three times this year.
  • The current market pricing indicates a nearly even chance that the Federal Reserve will start cutting rates in June and a total of 65 basis points (bps) rate cut for 2024, lower than the central bank's projection of 75 bps.
  • The yield on the benchmark 10-year US government bond advanced to a four-month high, which should help limit the downside for the US Dollar and cap gains for the non-yielding yellow metal amid overbought conditions.
  • Investors now look to the US economic docket, featuring the ADP report on private-sector employment and ISM Services PMI, which, along with speeches by influential FOMC members, should provide a fresh impetus.

Technical Analysis: Gold price corrective pullback might still be seen as an opportunity for bullish traders

From a technical perspective, the Gold price has been scaling higher in uncharted territory, and the recent momentum seems strong enough to allow bulls to conquer the $2,300 mark. That said, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains.

Meanwhile, any corrective decline now seems to find support near the $2,265 area ahead of the $2,250 level. This is followed by the weekly low, around the $2,228 region, which, if broken, might prompt some technical selling and drag the Gold price back toward the $2,200 psychological mark. The latter should act as a key pivotal point, and a convincing break below might shift the near-term bias in favor of bearish traders.

Gold FAQs

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.

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.

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.

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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