Gold hangs near daily low amid risk-on and bullish USD, holds above $2,350 level

Gold price drifts lower on Monday amid hopes that the Iran-Israel conflict will not escalate further.
Reduced Fed rate cut bets continue to underpin the USD and further contribute to the offered tone.
The fundamental backdrop warrants caution before positioning for any further depreciating move.

Gold price (XAU/USD) maintains its offered tone through the first half of the European session and is currently placed just above the $2,350 level, or a one-week low touched earlier this Monday. The global risk sentiment gets a boost amid signs that a conflict between Iran and Israel will not worsen. This is evident from a generally positive tone around the equity markets, which, along with expectations that the Federal Reserve (Fed) will keep interest rates higher for longer amid sticky inflation, exert some downward pressure on the safe-haven precious metal.

Any meaningful corrective decline, however, still seems elusive in the wake of growing acceptance that major central banks will cut interest rates later this year, which, in turn, might continue to act as a tailwind for the non-yielding Gold price. Traders might also prefer to wait for this week's key US macro releases – the Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index – before placing fresh directional bets. This makes it prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out.

Daily Digest Market Movers: Gold price remains depressed amid fading safe-haven demand and bullish USD

Iran signaled that it has no plans to retaliate against the Israeli limited-scale missiles strike on Friday, easing fears about a further escalation of geopolitical tensions in the Middle East and undermining the safe-haven Gold price.
Investors have pushed back their expectations about the timing of the first interest rate cut by the Federal Reserve to September and also downsized bets for the number of rate cuts in 2024 to two, or around 40 basis points.
Chicago Fed President Austan Goolsbee argued on Friday that progress on US inflation has stalled this year and that it would make sense to wait to get more clarity on the inflation outlook before taking a policy step.
The yield on the benchmark 10-year US government bond stands tall near a multi-month peak, which, in turn, is seen acting as a tailwind for the US Dollar and exerting additional pressure on the non-yielding yellow metal.
Concerns about slowing global economic growth support prospects for synchronized interest-rate cuts by most major central banks in the second half of this year, which, in turn, could lend support to the XAU/USD.
Traders might also wait for this week's release of flash global PMI prints, the Advance US Q1 GDP report, and the US Personal Consumption Expenditures (PCE) Price Index before placing fresh directional bets.

Technical Analysis: Gold price remains confined in a familiar trading range, downside potential seems limited

From a technical perspective, the range-bound price action witnessed over the past week or so constitutes the formation of a rectangle on short-term charts. Against the backdrop of the recent blowout rally, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart have eased from the overbought territory and suggest that the path of least resistance for the Gold price is to the upside. That said, bulls might wait for sustained strength and acceptance above the $2,400 mark – representing the top end of the trading range – before positioning for any further gains.

On the flip side, the lower boundary of the aforementioned range, around the $2,364-2,363 region, is likely to protect the immediate downside and act as a key pivotal point. A convincing break below might prompt some technical selling and drag the Gold price to the $2,325-2,322 area en route to the $2,300 round figure.

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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