- Gold price fails to lure buyers amid a fresh leg up in the US bond yields, modest USD uptick.
- A positive risk tone also contributes to capping the upside for the safe-haven precious metal.
- Traders, however, might prefer to wait for the US NFP report before placing aggressive bets.
Gold price (XAU/USD) struggles to capitalize on the previous day’s goodish recovery from the $2,282-2,281 region or a nearly four-week low and oscillates in a narrow band during the Asian session on Thursday. As was widely anticipated, the Federal Reserve (Fed) kept its benchmark interest rate unchanged at the end of a two-day meeting on Wednesday, though it reiterated that it wants to gain greater confidence that inflation will continue to fall before cutting rates. This, in turn, triggers a fresh leg up in the US Treasury bond yields, which lends some support to the US Dollar (USD) and acts as a headwind for the non-yielding yellow metal.
In the post-meeting press conference, Fed Chair Jerome Powell acknowledged that the progress towards the 2% annual inflation target had largely stalled, though dismissed the prospect of a rate hike. This, along with easing fears about a further escalation of geopolitical tensions in the Middle East, boosts investors’ appetite for riskier assets and turns out to be another factor contributing to capping the upside for the safe haven Gold price. That said, the recent repeated failures to find acceptance below the $2,300 mark warrants caution for bearish traders and positioning for further losses ahead of the release of the US Nonfarm Payrolls (NFP) on Friday.
Daily Digest Market Movers: Gold price is undermined by a combination of factors, though the downside remains cushioned
- Federal Reserve Chair Jerome Powell warned on Wednesday that interest rates will remain high for longer as disinflation has slowed in recent months and acts as a headwind for the Gold price.
- The US Treasury bond yields reversed a part of the previous day’s post-FOMC slide, helping revive the demand for the US Dollar and contributing to capping the upside for the non-yielding yellow metal.
- Meanwhile, the global risk sentiment got a boost after Powell signaled that the next move from the Fed was still likely to be an interest rate cut, which further undermines the safe-haven XAU/USD.
- This, along with easing geopolitical tensions, suggests that the path of least resistance for the commodity is to the downside, though the lack of selling warrants caution for bearish traders.
- Investors might also prefer to move to the sidelines ahead of the release of the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday.
- In the meantime, Thursday’s US economic docket – featuring Challenger Job Cuts, the usual Weekly Initial Jobless Claims, and Trade Balance data – will be looked upon for short-term trading impetus.
Technical Analysis: Gold price could slide further once the 50% Fibo. level support near the $2,280 area is broken decisively
From a technical perspective, weakness back below the $2,300 mark now seems to find decent support near the $2,280 level. The latter coincides with the 50% Fibonacci retracement level of the March-April rally, which, if broken decisively, should pave the way for deeper losses. The Gold price might then accelerate the fall towards the next relevant support near the $2,268-2,265 area en route to the $2,230-2,225 region and the $2,200 round figure.
On the flip side, the immediate hurdle is pegged near the $2,335 supply zone ahead of the weekly top, around the $2,352-2,353 area. A sustained strength beyond could lift the Gold price to the $2,371-2,372 resistance en route to the $2,400 round figure and the all-time peak, around the $2,431-2,432 area touched on April 12.
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.
Insight:
– Gold prices are currently facing resistance due to the US bond yields rising and a modest uptick in the USD.
– The positive risk sentiment and easing geopolitical tensions are also contributing to limiting the upside for gold.
– Traders are advised to wait for the upcoming US NFP report before making significant trading decisions.
– Technical analysis suggests that a break below the $2,280 support level could lead to further downside for gold prices.
