Gold price stands tall near all-time peak, eyes $2,400 mark amid geopolitical risks

Source Fxstreet
Apr 12, 2024 04:46
  • Gold price continues to scale new record highs amid persistent geopolitical tensions.
  • The strong move up seems unaffected by reduced Fed rate cut bets and bullish USD.
  • Extremely overbought conditions might prompt some profit-taking around the metal.

Gold price (XAU/USD) prolongs the recent well-established uptrend and climbs to the $2,400 neighborhood, or a fresh all-time high during the Asian session on Friday. Investors remain concerned about the risk of a further escalation of geopolitical tensions in the Middle East, which, in turn, is seen as a key factor benefiting the safe-haven precious metal. Apart from this, expectations that major central banks will cut interest rates this year offer additional support to the non-yielding yellow metal and contribute to the positive move. 

Bulls, meanwhile, seem rather unaffected by the recent US Dollar (USD) bullish run, bolstered by reduced bets for interest rate cuts by the Federal Reserve (Fed), which tends to undermine demand for the Gold price. Investors pushed back expectations about the timing of the first rate cut to September from June following the release of hot US consumer inflation figures on Wednesday. Market participants also pared their bets for the number of interest rate cuts this year to fewer than two from about three or four a few weeks ago.

That said, extremely overstretched conditions on daily, weekly and monthly charts might hold back traders from placing fresh bullish bets around the Gold price. Nevertheless, the XAU/USD remains on track to register gains for the fourth straight week, also marking the seventh in the previous eight. Moving ahead, the release of the Preliminary Michigan Consumer Sentiment Index, which, along with speeches by influential FOMC members, will drive the USD demand and produce short-term trading opportunities around the precious metal. 

Daily Digest Market Movers: Gold price benefits from the worsening Middle East crisis

  • Heightened tensions in the Middle East, amid a possible Iranian retaliation over a suspected Israeli strike on its embassy in Syria, lift the safe-haven Gold price to a fresh all-time high on Friday.
  • The cooler-than-expected US Producer Price Index released on Thursday keeps alive hopes for an imminent interest rate cut by the Federal Reserve and provides an additional boost to the XAU/USD 
  • According to the CME Group's FedWatch tool, traders see a greater chance that the Fed will not start its rate-cutting cycle before the September policy meeting and fewer than two rate cuts this year. 
  • New York Fed President John Williams noted that inflation setbacks are not a surprise and that the central bank does not need to change policy in the near term, though eventually will need to cut rates.
  • Richmond Fed President Thomas Barkin said that the central bank is not yet where it wants to be on inflation and this week's CPI report did not increase his confidence that disinflation is spreading.
  • The hawkish outlook keeps the US Treasury bond yields elevated, which allows the US Dollar to stand tall near the YTD top, albeit does little to dent the bullish sentiment surrounding the XAU/USD.

Technical Analysis: Gold price bulls retain control despite overbought conditions

From a technical perspective, the strong positive momentum remains uninterrupted despite the extremely overbought Relative Strength Index (RSI) on the daily chart. Bulls, however, might opt to take some profits near the $2,400 mark heading into the weekend, warranting some caution before positioning for any further appreciating move. Any meaningful corrective slide below the Asian session low, around the $2,370 area, however, is likely to find decent support near the $2,352-2,350 region. Some follow-through selling could expose the next relevant support near the $2,332 area before the Gold price eventually drops to the $2,300 neighborhood, or the weekly low.

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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Gold ticks higher on geopolitical risk and positive outlook for demandGold price (XAU/USD) is trading marginally higher on Thursday, exchanging hands in the $2,310s at the time of writing, after better-than-expected trade data from China, a major market for Gold, and the publication of a report by the World Gold Council (WGC) highlighting continued demand from central banks and Asian buyers.
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