Gold price hangs near multi-day low, downside remains limited amid modest USD weakness

  • Gold price retreats further from a nearly two-week high amid the Fed's hawkish outlook.
  • The risk-on mood also undermines the XAU/USD, though geopolitical risks limit losses.
  • A subdued USD price action also warrants caution before placing aggressive bearish bets.

Gold price (XAU/USD) attracts some follow-through selling on Friday and retreats further from a nearly two-week high set the previous day. Hawkish FOMC meeting minutes released on Wednesday, along with comments by a slew of influential Federal Reserve (Fed) officials, suggested that the US central bank is in no hurry to cut interest rates. The higher-for-longer narrative remains supportive of elevated US Treasury bond yields. Furthermore, the recent risk-on rally across the global financial markets remains unabated and further contributes to driving flows away from the non-yielding yellow metal. 

Meanwhile, the US Dollar (USD), so far, has struggled to attract any meaningful buyers and remains well within the striking distance of its lowest level in almost three weeks. This, along with geopolitical risks stemming from conflicts in the Middle East, could act as a tailwind for the safe-haven Gold price. In the absence of any relevant market-moving economic data, the US bond yields and the USD price dynamics might continue to play a key role in driving demand for the XAU/USD. Traders will further take cues from the broader risk sentiment to grab short-term opportunities on the last day of the week. 

Daily Digest Market Movers: Gold price draws some support from softer USD and geopolitics

  • Israel intensified its bombardment on Gaza's Rafah, while Yemen's Iran-aligned Houthis rebels stepped up attacks on ships in the Red Sea, raising the risk of a wider war in the Middle East and underpinning the safe-haven Gold price.
  • The US Dollar struggles to capitalize on the previous day's goodish rebound from its lowest level in almost three weeks and lends additional support to the XAU/USD, though the Federal Reserve's hawkish outlook might cap gains.
  • Minutes of the latest FOMC policy meeting released on Wednesday pointed to a broad uncertainty about how long borrowing costs should remain at their current level to bring down inflation back to the central bank's 2% target.
  • Fed Vice Chair Philip Jefferson thinks that the central bank could begin to cut rates later this year, though said that he will be looking across a broad set of economic indicators for conviction that it is time to lower borrowing costs.
  • Meanwhile, Philadelphia Fed President Patrick Harker noted that the central bank is getting close to cutting rates but a move in the near term is unlikely and emphasized that he doesn’t want to cut too early and re-ignite inflation.
  • Separately, Fed Governor Lisa Cook noted that it is not yet time to reduce interest rates as the path towards the 2% inflation goal has been and could still be bumpy and uneven, citing the recent stronger consumer inflation figures.
  • Furthermore, Fed Governor Christopher Waller said that policymakers should delay rate cuts by at least another couple more months to see if the hot inflation print in January was just a speed bump in the road towards price stability.
  • As per the CME Group's FedWatch Tool, the markets are pricing in around a 30% chance that the Fed will start cutting interest rates in May, while the odds for a move at the June FOMC policy meeting currently stand at about 66%.
  • Data released on Thursday showed that the number of Americans applying for unemployment insurance benefits fell from 213K to 201K during the week ending February 17, offering fresh signs of strength in the labor market.
  • The yield on the benchmark 10-year US government bond holds steady near its highest level since late November, acting as a tailwind for the Greenback and capping the non-yielding yellow metal amid the prevalent risk-on mood.
  • The better-than-expected release of the flash Eurozone PMI prints suggested that the downturn in the business activity eased in February, which further boosts investors’ sentiment and should contribute to keeping a lid on the XAU/USD.

Technical Analysis: Gold price bulls are not ready to give up yet, $2,000  mark holds the key

From a technical perspective, the 50-day SMA, currently pegged near the $2,032 area, followed by the $2,035 region, or a nearly two-week high touched on Thursday, could act as an immediate hurdle. Given that oscillators on the daily chart have just started gaining positive traction, a sustained strength beyond the said barrier has the potential to lift the Gold price towards the $2,044-2,045 intermediate resistance en route to the $2,065 supply zone.

On the flip side, the $2,020-2,019 area now seems to have emerged as an immediate support. This is followed by the 100-day SMA, around the $2,000 psychological mark, which if broken decisively will expose the monthly low, around the $1,984 region. The subsequent downfall could drag the Gold price further towards challenging the very important 200-day SMA support near the $1,966-1,965 zone.

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

USD   -0.37% -0.43% 0.03% -0.48% 0.26% -1.09% -0.03%
EUR 0.38%   -0.04% 0.41% -0.10% 0.64% -0.71% 0.35%
GBP 0.42% 0.06%   0.45% -0.06% 0.67% -0.67% 0.40%
CAD -0.03% -0.40% -0.46%   -0.51% 0.23% -1.12% -0.05%
AUD 0.48% 0.12% 0.06% 0.51%   0.74% -0.61% 0.45%
JPY -0.25% -0.67% -0.67% -0.23% -0.74%   -1.36% -0.27%
NZD 1.08% 0.71% 0.66% 1.11% 0.61% 1.34%   1.05%
CHF 0.02% -0.35% -0.40% 0.05% -0.46% 0.27% -1.07%  

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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