- Gold price edges higher on rumors Japanese authorities are selling the Dollar to buy the Yen
- The precious metal has weakened amid expectations interest rates will remain higher for longer in the US.
- The US Federal Reserve meeting in May could color the outlook for interest rates, impacting Gold price.
The Gold price (XAU/USD) edges higher on Monday, trading at $2,338 an ounce, on the back of a weaker US Dollar (USD) – the currency in which Gold is mostly quoted and traded in.
The USD depreciates after heavy selling pressure, purportedly although still unconfirmed by the Japanese authorities, who are selling USD to buy the Japanese Yen (JPY) in order to prop up their currency.
Gold price comes off highs on interest rate outlook
The Gold price is trading sideways after a backslide from record highs of $2,430 in mid-April, when it became apparent interest rates would remain higher for longer in the United States. This made non-yielding Gold less attractive because investors could earn relatively more by staying in cash.
Persistently high inflation in the US caused the recalibration of the outlook for interest rates. From the US Federal Reserve (Fed) – the body tasked with setting interest rates in America – foreseeing the need for three 0.25% interest-rate cuts in 2024, markets now expect only one and a half 0.25% cuts, due to persistently high inflation.
More light will be shed on the outlook for interest rates when the Fed meets to decide its monetary policy on Wednesday, in the meantime Gold price may remain relatively subdued.
Gold price may drift lower in the short-term but will eventually recover – TD Securities
Gold price is likely to drift lower in the short-term if economic data stays firm and inflation persists but this is unlikely to last into the autumn, according to analysts at investment bank TD Securities.
“..once we start seeing disappointment or negative data surprises, investors may start getting interested again into the autumn,” says Bart Melek, Head of Commodity Strategy at TD Securities.
“Once Western demand is combined with China uptake, it is quite likely that the yellow metal will move above recent record levels. Under this scenario, $2,500+ target would be reasonable,” adds Melek.
Technical Analysis: Gold price pulls back in an uptrend
Gold price (XAU/USD) is showing a mixed picture on the 4-hour chart, which technical analysts use to analyze the short-term trend.
On the one hand, the sell-off that began at the April 19 highs could still have lower to go. In such a scenario, the move could be unfolding as a three-wave Measured Move pattern with its third and final C wave yet to unfold.
On the other hand, a break above the cluster of Moving Averages and the peak of wave B at $2,353 would potentially usher in a new more bullish environment. This could then see a retest of $2,400.
A break below $2,290, however, would confirm more downside as wave C unfolds, with targets at $2,267 and $2,243.
The Moving Average Convergence Divergence (MACD) momentum indicator is printing green histogram bars but has not yet risen above zero, giving a neutral to marginally positive stance.
Additionally, the trend for Gold price is up both in the medium and long-term, supporting bulls.
Economic Indicator
Fed Interest Rate Decision
The Federal Reserve deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).
Additional Insight: Factors Affecting Gold Price
Aside from the influence of interest rates and currency fluctuations, the price of Gold is also affected by geopolitical tensions, market volatility, and demand from emerging economies like China and India. These factors can create short-term fluctuations in Gold prices, making it essential for investors to keep a close eye on global events impacting the precious metal.
- Gold price edges higher on rumors Japanese authorities are selling the Dollar to buy the Yen
- The precious metal has weakened amid expectations interest rates will remain higher for longer in the US.
- The US Federal Reserve meeting in May could color the outlook for interest rates, impacting Gold price.
The Gold price (XAU/USD) edges higher on Monday, trading at $2,338 an ounce, on the back of a weaker US Dollar (USD) – the currency in which Gold is mostly quoted and traded in.
The USD depreciates after heavy selling pressure, purportedly although still unconfirmed by the Japanese authorities, who are selling USD to buy the Japanese Yen (JPY) in order to prop up their currency.
Gold price comes off highs on interest rate outlook
The Gold price is trading sideways after a backslide from record highs of $2,430 in mid-April, when it became apparent interest rates would remain higher for longer in the United States. This made non-yielding Gold less attractive because investors could earn relatively more by staying in cash.
Persistently high inflation in the US caused the recalibration of the outlook for interest rates. From the US Federal Reserve (Fed) – the body tasked with setting interest rates in America – foreseeing the need for three 0.25% interest-rate cuts in 2024, markets now expect only one and a half 0.25% cuts, due to persistently high inflation.
More light will be shed on the outlook for interest rates when the Fed meets to decide its monetary policy on Wednesday, in the meantime Gold price may remain relatively subdued.
Gold price may drift lower in the short-term but will eventually recover – TD Securities
Gold price is likely to drift lower in the short-term if economic data stays firm and inflation persists but this is unlikely to last into the autumn, according to analysts at investment bank TD Securities.
“..once we start seeing disappointment or negative data surprises, investors may start getting interested again into the autumn,” says Bart Melek, Head of Commodity Strategy at TD Securities.
“Once Western demand is combined with China uptake, it is quite likely that the yellow metal will move above recent record levels. Under this scenario, $2,500+ target would be reasonable,” adds Melek.
Technical Analysis: Gold price pulls back in an uptrend
Gold price (XAU/USD) is showing a mixed picture on the 4-hour chart, which technical analysts use to analyze the short-term trend.
On the one hand, the sell-off that began at the April 19 highs could still have lower to go. In such a scenario, the move could be unfolding as a three-wave Measured Move pattern with its third and final C wave yet to unfold.
On the other hand, a break above the cluster of Moving Averages and the peak of wave B at $2,353 would potentially usher in a new more bullish environment. This could then see a retest of $2,400.
A break below $2,290, however, would confirm more downside as wave C unfolds, with targets at $2,267 and $2,243.
The Moving Average Convergence Divergence (MACD) momentum indicator is printing green histogram bars but has not yet risen above zero, giving a neutral to marginally positive stance.
Additionally, the trend for Gold price is up both in the medium and long-term, supporting bulls.
Economic Indicator
Fed Interest Rate Decision
The Federal Reserve deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).
Additional Insight: Factors Affecting Gold Price
Aside from the influence of interest rates and currency fluctuations, the price of Gold is also affected by geopolitical tensions, market volatility, and demand from emerging economies like China and India. These factors can create short-term fluctuations in Gold prices, making it essential for investors to keep a close eye on global events impacting the precious metal.
