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Gold price stands tall near record high, bulls not ready to give up amid geopolitical risks - Faicy

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Gold price stands tall near record high, bulls not ready to give up amid geopolitical risks

  • Gold price is seen consolidating its recent strong gains to an all-time peak touched on Monday.
  • Expectations that the Fed may delay cutting interest rates cap gains amid overbought conditions.
  • Elevated US bond yields underpin the USD and contribute to capping the upside for the XAU/USD.

Gold price (XAU/USD) enters a bullish consolidation phase during the Asian session on Tuesday and oscillates in a range below the $2,350 level, or the all-time peak touched the previous day. Expectations that the Federal Reserve (Fed) could delay cutting interest rates keep the US Treasury bond yields elevated and act as a tailwind for the US Dollar. This, along with a generally positive risk tone, holds back bulls from placing fresh bets around the non-yielding yellow metal amid extremely overstretched conditions on the daily chart.

Meanwhile, any meaningful corrective decline still seems elusive in the wake of fading optimism over talks on a potential Israel-Hamas ceasefire and the protracted Russia-Ukraine war, which might continue to underpin the safe-haven Gold price. Investors might also prefer to wait for more cues about the Fed’s rate-cut path before placing fresh bets. Hence, the focus will remain on the release of the US consumer inflation figures for March and the FOMC minutes on Wednesday, which will provide a fresh directional impetus to the XAU/USD.

Daily Digest Market Movers: Gold price takes a brief pause amid reduced Fed rate cut bets

  • The upbeat US jobs data released on Friday, along with the recent hawkish remarks by Federal Reserve officials, force investors to trim their bets for the total number of rate cuts in 2024 and cap gains for the Gold price. 
  • Chicago Fed President Austan Goolsbee acknowledged on Monday that the US economy remains strong, but the central bank must determine how long to be restrictive on monetary policy without damaging the economy. 
  • Minneapolis President Neel Kashkari said that the inflation rate is running around 3%, and the Fed has to get back down to 2%. The labor market is not red hot like it was 12 months ago, but it’s still tight.
  • The markets are now pricing in a nearly 50% chance that the Fed will leave the policy rate unchanged in June, lifting the yield on the benchmark 10-year US government bond to its highest level since late November.
  • Elevated US Treasury bond yields act as a tailwind for the US Dollar and further contribute to keeping a lid on the non-yielding yellow metal, though geopolitical tension might continue to lend some support.
  • Israel’s Prime Minister Benjamin Netanyahu said that a date has been set for a ground offensive in the southern Gaza city of Rafah, tempering hopes for a potential ceasefire and keeping a lid on the latest optimism.
  • Investors now look to the US Consumer Price Index (CPI) and the FOMC meeting minutes on Wednesday for clues about the Fed’s rate-cut path, which should provide a fresh directional impetus to the XAU/USD.

Technical Analysis: Gold price needs to consolidate before the next leg up amid overbought RSI

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the recent blowout rally witnessed over the past two weeks or so. In the meantime, any corrective decline below the Asian session low, around the $2,336 area, is likely to find decent support and remain limited near the $2,300 mark. The said handle should act as a key pivotal point, which, if broken decisively, might prompt some technical selling and drag the Gold price further towards the $2,267-2,265 horizontal support.

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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