Gold price moves away from record peak, downside seems limited ahead of US NFP

Source Fxstreet
Apr 5, 2024 03:16
  • Gold price corrects further from the all-time high amid hawkish remarks by Fed officials.
  • Persistent geopolitical tensions should limit the downside for the safe-haven XAU/USD.
  • Traders might also refrain from placing aggressive bets ahead of the crucial US jobs data.

Gold price (XAU/USD) extends the previous day's modest pullback from the record peak and continues losing ground through the Asian session on Friday. The overnight hawkish remarks by Federal Reserve (Fed) officials assist the US Dollar (USD) in gaining some follow-through positive traction and moving away from a nearly two-week low, which is seen dragging the commodity lower for the second straight day. The downside for the precious metal, however, seems cushioned in the wake of geopolitical tensions stemming from conflicts in the Middle East, which tends to benefit traditional safe-haven assets.

Traders might also prefer to wait for more cues about the Fed's interest rate-cut path before placing fresh directional bets around the non-yielding Gold price. Hence, the focus will remain glued to the release of the crucial US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, due later during the North American session. Any disappointment will further point to signs of a cooling labor market and strengthen the case for a June Fed rate cut. Such a development could trigger a fresh bout of USD selling and provide additional support to the yellow metal. 

Daily Digest Market Movers: Gold price witnesses some follow-through profit-taking amid mixed rate-cut cues

  • Federal Reserve officials took a cautious approach in comments on the outlook for possible interest rate cuts this year, which, in turn, prompts some profit-taking around the Gold price. 
  • Richmond Fed President Thomas Barkin said that he was open to interest rate cuts once it is clear that progress on inflation will be sustained and applied more broadly in the economy.
  • Minneapolis Fed Bank President Neel Kashkari said that he penciled in two rate cuts this year at the March meeting, though none may be required if inflation continues to move sideways.
  • The hawkish comments keep the US Treasury bond yields elevated, which assists the US Dollar in building on the overnight bounce and further exerts pressure on the non-yielding yellow metal. 
  • Geopolitical tensions in the Middle East ratcheted up amid persistent fears that an Iran retaliatory strike against the Israeli attack on its embassy in Syria earlier this week could be imminent.
  • This, along with the protracted Russia-Ukraine war and a devastating earthquake in Taiwan, continues to weigh on investors' sentiment and should lend support to the safe-haven XAU/USD.
  • Investors now look to the US monthly jobs report, which is expected to show that the economy added 200K jobs in March vs the 275K previous, and the unemployment rate held steady at 3.9%. 
  • Apart from this, the Average Hourly Earnings will influence market expectations about the Fed's rate-cut path, which, in turn, will drive the USD and provide a fresh impetus to the commodity.

Technical Analysis: Gold price could aim to retest weekly trough once the $2,265 immediate support is broken

From a technical perspective, weakness below the $2,265 area could expose the weekly swing low, around the $2,229-2,228 region, with the $2,250 level acting as an intermediate support. Some follow-through selling has the potential to drag the Gold price toward the $2,200 psychological mark, which is likely to act as a strong base. That said, a convincing breakdown through the said handle should pave the way for some meaningful corrective decline. 

On the flip side, a move beyond the $2,280 area might confront some resistance near the Asian session peak, just ahead of the $2,300 round-figure mark. Acceptance above the latter will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent breakout momentum witnessed over the past two weeks or so.

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.


Disclaimer: For information purposes only. Past performance is not indicative of future results.
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