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    Gold price consolidates near two-month peak, bullish potential seems intact

    Source Fxstreet
    Mar 4, 2024 04:43
    • Gold price pauses after last week’s strong positive move to a fresh YTD top.
    • Slightly overbought RSI on the daily chart acts as a headwind for the metal.
    • Traders also seem reluctant ahead of this week’s key US data/event risks.

    Gold price (XAU/USD) is seen oscillating in a narrow range during the Asian session on Monday and consolidating last week's strong gains to the $2,088-2,089 region, or its highest level since December 28. The US Dollar (USD) continues to be undermined by the disappointing release of the US ISM survey on Friday, which showed that manufacturing sector activity contracted more than anticipated in February. Adding to this, the less hawkish remarks by several Federal Reserve (Fed) officials reinforced bets that the US central bank will start cutting interest rates at the June policy meeting. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal.

    Bulls, however, seem reluctant to place fresh bets around the Gold price and prefer to wait for more cues about the Fed's rate-cut path. Apart from this, the latest optimism over Gaza ceasefire talks further contributes to capping the upside for the safe-haven precious metal ahead of this week's important US macro releases, including the closely watched monthly employment details on Friday. Furthermore, Fed Chair Jerome Powell's congressional testimony on Wednesday and Thursday should influence the USD and provide some meaningful impetus to the XAU/USD. In the meantime, the commodity could extend the consolidative price move in the absence of any relevant data on Monday.

    Daily digest market movers: Gold price remains supported by bets for an imminent Fed rate cut

    • The US Dollar remains on the defensive in the wake of Friday's disappointing US macro data and less-hawkish remarks by Federal Reserve officials, which is seen acting as a tailwind for the Gold price.
    • The ISM survey showed that business activity in the US manufacturing sector contracted more quickly than anticipated in February, with a measure of employment dropping to a seven-month low.
    • The US ISM Manufacturing Index fell to 47.8 from 49.1 in January amid a decline in the New Orders Index to 49.2, while the Prices Paid Index edged lower to 52.5 from 52.9 in the previous month.
    • Adding to this, the University of Michigan’s Consumer Sentiment Index also missed estimates and dropped to 76.9 in February, though inflation expectations were in line with the expectations.
    • Chicago Federal Reserve President Austan Goolsbee noted that the policy rate is quite restrictive, and Dallas Fed President Lorie Logan said that it would be appropriate to slow the pace of the balance sheet shrinking.
    • Fed Governor Adriana Kugler noted that progress on disinflation will continue, and Richmond Fed President Thomas Barkin said that overall inflation is likely to come down over the next few months.
    • Furthermore, Fed Governor Christopher Waller said that he would like the central bank to boost its share of short-term Treasuries, exerting some downward pressure on the US Treasury bond yields.
    • A softer risk tone also lends support to the safe-haven XAU/USD amid subdued US Dollar demand, though the upside seems limited ahead of the key US data and Fed Chair Jerome Powel's testimony.

    Technical analysis: Gold price seems poised to appreciate further, $2,062-2,064 to lend support

    From a Technical perspective, Friday's breakout through the $2,062-2,064 horizontal barrier was seen as a fresh trigger for bullish traders and supports prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is hovering near the overbought zone and holding back bulls from placing fresh bets. This makes it prudent to wait for some near-term consolidation before positioning for an extension of a nearly three-week-old uptrend.

    In the meantime, the aforementioned resistance breakpoint, around the $2,064-2,062 region, now seems to protect the immediate downside. Sustained weakness below, however, might prompt aggressive technical selling and expose the 50-day Simple Moving Average (SMA) support, currently pegged near the $2,034 area. The latter should at as a key pivotal point, which if broken decisively will negate the positive outlook and shift the bias in favour of bearish traders.

    On the flip side, the $2,088 zone, or over a two-month high touched on Friday, now seems to act as an immediate hurdle ahead of the $2,100 round figure. Some follow-through buying has the potential to lift the Gold price further towards the $2,025-2,030 intermediate hurdle en route to the all-time peak, around the $2,144-2,145 zone touched early December.

    US Dollar price today

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

    USD   -0.03% -0.04% 0.05% 0.11% 0.04% 0.09% -0.07%
    EUR 0.02%   -0.02% 0.07% 0.13% 0.06% 0.12% -0.04%
    GBP 0.05% 0.02%   0.09% 0.15% 0.09% 0.14% -0.02%
    CAD -0.05% -0.06% -0.09%   0.06% -0.01% 0.04% -0.10%
    AUD -0.11% -0.13% -0.15% -0.06%   -0.07% -0.01% -0.17%
    JPY -0.04% -0.07% -0.12% -0.01% 0.06%   0.04% -0.11%
    NZD -0.09% -0.12% -0.14% -0.05% 0.01% -0.06%   -0.16%
    CHF 0.07% 0.04% 0.02% 0.12% 0.17% 0.10% 0.16%  

    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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