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    Gold price edges higher in a familiar trading range, remains below 50-day SMA

    Source Fxstreet
    Jan 29, 2024 04:33
    • Gold price draws some support from escalating geopolitical tensions in the Middle East.
    • Sliding US bond yields also benefit the XAU/USD, though a bullish USD caps the upside.
    • Traders also seem reluctant ahead of the crucial two-day FOMC monetary policy meeting.

    Gold price (XAU/USD) kicks off the new week on a positive note, albeit struggles to build on strength and remains below the 50-day Simple Moving Average (SMA) during the Asian session. Traders now seem reluctant and opt to wait for more cues about the timing of when the Federal Reserve (Fed) will start cutting interest rates before placing fresh directional bets. Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC monetary policy meeting starting on Tuesday.

    In the meantime, the killing of three US Army soldiers in a drone attack by radical Iran-backed militant groups raises the risk of a major escalation of geopolitical tensions in the Middle East. Adding to this, a generally weaker tone around the equity markets should act as a tailwind for the safe-haven Gold price. That said, diminishing odds for a more aggressive policy easing by the Fed act as a tailwind for the US Dollar (USD) and hold back bulls from placing aggressive bets around the XAU/USD.

    Daily Digest Market Movers: Gold price is underpinned by reviving safe-haven demand; follow-through lacking 

    • The risk of a further escalation of geopolitical tensions in the Middle East weighs on investors' sentiment and lends support to the safe-haven Gold price on the first day of a new week.
    • A drone attack on a US base in Jordan killed three US soldiers, marking the first death of US service personnel in the region since the Hamas-Israel war broke out on October 7.
    • President Joe Biden doubled down on his pledge of reprisals and said that the US shall respond and hold all those responsible to account at a time and in a manner of our choosing.
    • The US Dollar (USD) holds steady just below a one-month peak as investors continue to scale back their expectations for a more aggressive easing by the Federal Reserve.
    • Data released on Friday, however, showed that inflation rose modestly in December and reaffirmed expectations that the Fed will start cutting interest rates by the middle of 2024.
    • The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December.
    • Meanwhile, the annual Core PCE Price Index – considered the Fed's preferred gauge of inflation – decelerated more than expected, to 2.9% from 3.2% in November.
    • Other details of the publication showed that Personal Spending rose 0.7% in December while Personal Income grew 0.3%, pointing to strong demand from US consumers.
    • This comes on top of the stronger US Q4 GDP print earlier last week and suggested that the economy is still in good shape, further fuelling optimism about a soft landing.
    • A modest decline in the US Treasury bond yields keeps a lid on any further gains for the Greenback and might continue to act as a tailwind for the non-yielding yellow metal.
    • Traders might also prefer to wait for the FOMC meeting starting on Tuesday and this week's key US macro data, including the Nonfarm Payrolls (NFP) report on Friday.

    Technical Analysis: Gold price needs to find acceptance above the 50-day SMA for bulls to seize intraday control

    From a technical perspective, any subsequent move beyond the 50-day SMA hurdle, currently around the $2,027-2,028 region, might continue to attract some sellers near the $2,040-2,042 supply zone. A sustained strength beyond the latter could trigger a short-covering rally and lift the Gold price further to the $2,077 intermediate hurdle en route to the $2,100 round-figure mark.

    On the flip side, immediate support is pegged near the $2,012-2,010 area ahead of the $2,000 psychological mark. Some follow-through selling will be seen as a fresh trigger for bearish traders and expose the 100-day SMA, currently near the $1,977-1,976 area. The Gold price could eventually drop to test the very important 200-day SMA, near the $1,964-1,963 region.

    US Dollar price today

    The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.

    USD   -0.03% -0.08% -0.07% -0.26% -0.06% -0.13% -0.11%
    EUR 0.03%   -0.04% -0.03% -0.22% -0.01% -0.10% -0.08%
    GBP 0.08% 0.04%   0.00% -0.18% 0.03% -0.06% -0.03%
    CAD 0.06% 0.02% -0.02%   -0.19% 0.02% -0.06% -0.04%
    AUD 0.25% 0.19% 0.16% 0.17%   0.18% 0.11% 0.15%
    JPY 0.06% 0.02% 0.13% -0.01% -0.18%   -0.10% -0.05%
    NZD 0.13% 0.10% 0.06% 0.06% -0.11% 0.05%   0.02%
    CHF 0.10% 0.06% 0.03% 0.04% -0.13% 0.05% -0.01%  

    The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

    Gold FAQs

    Why do people invest in Gold?

    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.

    Who buys the most Gold?

    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.

    How is Gold correlated with other assets?

    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.

    What does the price of Gold depend on?

    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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