Gold price holds steady below $2,400 mark, bullish potential seems intact

Source Fxstreet
Apr 16, 2024 04:46
  • Gold price oscillates in a narrow band on Tuesday and remains close to the all-time peak.
  • The worsening Middle East crisis weighs on investors’ sentiment and benefits the metal.
  • Reduced Fed rate cut bets lift the USD to a fresh YTD top and cap gains for the XAU/USD.

Gold price (XAU/USD) struggles to capitalize on the overnight goodish bounce from the $2,325-2,324 area, or a multi-day low, and oscillates in a narrow trading band during the Asian session on Tuesday. The precious metal, meanwhile, remains within striking distance of the all-time peak touched last Friday and continues to draw support from persistent geopolitical tensions stemming from the ongoing conflicts in the Middle East. Apart from this, a modest pullback in the US Treasury bond yields is seen as another factor acting as a tailwind for the yellow metal.

That said, expectations that the Federal Reserve (Fed) will delay cutting interest rates in the wake of still-resilient US economic and sticky inflation should act as a tailwind for the US bond yields. Furthermore, hawkish Fed expectations lift the US Dollar (USD) to its highest level since early November, which, in turn, contributes to capping the upside for the non-yielding Gold price. Traders now look forward to speeches by influential FOMC members, including Fed Chair Jerome Powell, to grab short-term opportunities later during the early North American session.

Daily Digest Market Movers: Gold price continues to draw support from persistent geopolitical tensions

  • The global risk sentiment remains fragile amid the worsening Middle East crisis and speculations that the Federal Reserve will keep rates higher for longer, which, in turn, acts as a tailwind for the Gold price.
  • Investors have been pushing back their expectations about the timing of the first interest rate cut by the Fed to September from June in the wake of concerns about sticky inflation and a resilient US economy.
  • The bets were reaffirmed by stronger-than-expected US Retail Sales data released on Monday, which indicated that consumer spending remains strong and could underpin inflation in the coming months.
  • The US Census Bureau reported that Retail Sales rose by 0.7% MoM in March as compared to consensus estimates for a 0.3% increase and the previous month's upwardly revised growth of 0.9%.
  • The yield on the benchmark 10-year US government bond shot to the highest level since November, though the disappointing release of the Empire State Manufacturing Index capped the upside.
  • The US Dollar prolongs its recent upward trajectory and climbs to over a five-month peak, which might hold back bulls from placing fresh bets and keep a lid on any further gains for the XAU/USD.
  • Tuesday's US economic docket features the release of housing market data and Industrial Production figures, which along with Fedspeak, might provide some impetus to the non-yielding yellow metal.

Technical Analysis: Gold price bulls still have the upper hand while above the $2,325-2,324 support zone

From a technical perspective, the overnight bounce validated the $2,325-2,324 support zone, which should now act as a key pivotal point. A convincing break below has the potential to drag the Gold price to the $2,300 round figure. Some follow-through selling will suggest that the precious metal has topped out in the near term and set the stage for some meaningful depreciating move towards the $2,220 zone with some intermediate support near the $2,250 region.

On the flip side, bulls might now wait for strength beyond the $2,400 mark before placing fresh bets and positioning for a move back towards retesting the record peak, around the $2,431-2,432 region touched last Friday. Given that the Relative Strength Index (RSI) on the daily chart is still flashing overbought conditions, the Gold price could pause near the all-time peak before resuming its recent well-established uptrend witnessed over the past three 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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