Gold price holds steady above $3,200 amid a combination of supporting factors
- Gold price attract fresh buyers on Monday amid modest USD weakness.
- US fiscal concerns and Fed rate cut bets keep the USD bulls on the defensive.
- Trade uncertainties and geopolitical risks further benefit the XAU/USD pair.
Gold price (XAU/USD) regains positive traction at the start of a new week and climbs beyond the $3,300 mark during the Asian session, reversing a major part of Friday's losses. The Personal Consumption Expenditures (PCE) Price Index released on Friday further pointed to signs easing inflationary pressures in the US and bolstered the case for more rate cuts by the Federal Reserve (Fed). This, in turn, is seen weighing on the US Dollar (USD) and acting as a tailwind for the non-yielding yellow metal.
Meanwhile, geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East, along with renewed US-China trade tensions, temper investors' appetite for riskier assets. This is evident from a generally weaker tone around the equity markets, which turns out to be another factor that benefits the safe-haven Gold price. However, the lack of strong follow-through buying warrants caution for the XAU/USD bulls ahead of this week's US macro releases scheduled at the start of a new month.
Daily Digest Market Movers: Gold price draws support from renewed USD selling and reviving safe-haven demand
- The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditures (PCE) Price Index cooled to the 2.1% YoY rate in April, or the lowest since February 2021. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, came in at 2.5%, down from the 2.7% increase registered in March.
- Traders continued to bet that the Federal Reserve will lower borrowing costs in September and are pricing in the possibility of another rate cut in December. Fed Governor Christopher Waller said on Monday that rate cuts remain possible later this year even with the Trump administration's tariffs likely to push up price pressures temporarily.
- Investors now await speeches from several FOMC members this week, including Fed Chair Jerome Powell's appearance later this Monday, for cues on the monetary policy outlook. This will play a key role in influencing the near-term US Dollar price dynamics and determining the next leg of a directional move for the non-yielding Gold price.
- Ukraine ramped up the war with one of the biggest drones attracted to Russia ahead of the second round of direct peace talks in Istanbul later today. Ukraine conducted major drone strikes against Russian military airfields across five regions on Sunday and hit over 40 Russian military aircraft, which included nuclear-capable long-range bombers.
- Israel strongly denied its involvement in the deadly incident that claimed at least 30 Palestinian lives and accused Hamas of firing on hungry civilians gathered to receive humanitarian aid in southern Gaza. This comes amid a flurry of conflicting reports and keeps geopolitical risks in play, further lending support to the safe-haven XAU/USD.
- Traders now look forward to important US macro releases scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI on Monday. Apart from this, Fed Chair Jerome Powell's speech might influence the USD price dynamics and contribute to producing short-term trading opportunities around the commodity.
Gold price needs to surpass the $3,326-3,328 hurdle to back prospects for any further appreciating move
From a technical perspective, the XAU/USD pair is likely to confront a stiff barrier near the $3,326-3,328 supply zone. Against the backdrop of last week's bounce from the 200-period Exponential Moving Average (EMA) pivotal support on the 4-hour chart, a sustained strength beyond will be seen as a fresh trigger for bullish traders. The subsequent move up could lift the Gold price to the $3,345-3,350 intermediate resistance, above which the Gold price could aim to reclaim the $3,400 mark. The momentum could extend further towards the next relevant barrier near the $3,432-3,434 region.
On the flip side, weakness below the $3,300 round figure could find some support near the $3,280-3,278 zone. Any further slide could be seen as a buying opportunity and remain limited near the $3,258-3,257 region. The latter represents the 200-period EMA on the 4-hour chart, which if broken decisively could make the Gold price vulnerable to accelerate the fall further towards the $3,200 mark.
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.
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