Gold refreshes all-time peak above $2,400 before retracing on risk aversion, strong USD

  • Gold reaches record $2,431, then pulls back amid stronger US Dollar and reduced inflation concerns.
  • Geopolitical tensions between Iran-Israel spark market volatility, initially raising demand for safe havens.
  • Fed officials' comments boost the US Dollar, a headwind for Gold prices.

Gold price finished the week with modest gains of 0.59% after reaching an all-time high during the North American session on Friday. Price action was volatile as Geopolitical risks sparked a flight to safe-haven assets, driving the non-yielding metal toward $2,431, a new all-time high, before retreating on overall US Dollar strength. At the time of writing, the XAU/USD exchanges hands at $2,343, down 1.18%.

According to news sources, Iran is preparing an attack on Israeli soil following an Israeli attack that killed seven Iranian officials two weeks ago.

Aside from this, the latest US inflation figures revealed on Wednesday and Thursday sparked volatility in the precious metal. The non-yielding metal traveled down to $2,303 following the US Consumer Price Index (CPI) release. However, the dip was short-lived as inflation pressures eased following the Producer Price Index (PPI) report printing below headline consensus  and some of February’s readings.

Federal Reserve officials are crossing newswires led by Boston Fed President Susan Collins, Chicago Fed President Austan Goolsbee, and the Kansas City Fed’s Jeffrey Schmid, largely heaping more cold water on rate cut hopes.

Daily digest market movers: Gold tumbles amid sour sentiment on US Dollar strength

  • The University of Michigan's preliminary Consumer Sentiment Index for April showed a decline to 59.7, falling below the expected 79.0. Additionally, short-term inflation expectations for the coming year increased to 3.1%, up from the anticipated and previous rate of 2.9%. Long-term inflation expectations, looking five years ahead, also rose, moving from 2.8% to 3.0%.
  • Mixed inflationary data revealed in the United States (US) prompted investors to trim expectations of the Fed’s rate cuts. Data from the Chicago Board of Trade (CBOT) suggests that futures traders expect just two cuts to the fed funds rate as they project the main reference rate to end the year at around 4.915%.
  • The US Dollar Index (DXY) also witnessed a substantial increase, soaring over 0.64% to reach a new YTD high of 106.10.
  • Boston Fed President Susan Collins said the first rate cut could be delayed while adding that she expects to cut rates twice instead of thrice.
  • Chicago Fed’s Austan Goolsbee commented that multiple inflation readings are higher than he wants, adding that  the Middle East instability is a wild card for the Fed in terms of oil prices and gas; a negative supply shock is not good.
  • Kansas City Fed's Jeffrey Schmid emphasized that the current stance of US monetary policy is appropriate, given the persistently sticky inflation levels. He urged for patience on interest rates, advocating for a cautious approach until it is evident that inflation is receding toward the 2% target.
  • World Gold Consortium reveals that the People’s Bank of China was the largest buyer of the yellow metal in February, increasing its reserves by 12 tonnes to 2,257 tonnes.

Technical analysis: Gold’s rally stalls as XAU/USD drops below $2,400

Gold’s uptrend is set to continue despite dipping toward the $2,350 area, after hitting an all-time high above $2,400. In the event that sellers push prices below $2,350, the next support level would be the April 10 low of $2,319, followed by the April 8 daily low of $2,303. Once cleared, the next support would be March’s 21-session high of $2,222. Further losses are seen at $2,200.

On the flip side, expect further upside above $2,400, with the next resistance seen at $2,431, followed by $2,450. The next milestone will be reaching $2,500.

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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