Gold price pulls back from over two-week top amid a modest US Dollar uptick
- Gold price edges lower and erodes a part of Friday’s gains to over a two-week high.
- Hawkish Fed expectations revive the USD demand and exert pressure on the metal.
- Geopolitical risks could lend support to the XAU/USD and help limit further losses.
Gold price (XAU/USD) settled in the green for the first time in the previous three weeks in the wake of persistent geopolitical tensions and the recent US Dollar (USD) corrective decline. The precious metal, however, struggles to capitalize on its move beyond the 50-day Simple Moving Average (SMA) and edges lower during the Asian session on Monday amid bets that the Federal Reserve (Fed) will keep rates higher for longer.
In fact, market participants pushed back their expectations for an early interest rate cut by the US central bank following the release of higher-than-expected US consumer and producer prices earlier this month. Adding to this, the minutes of the late January FOMC meeting, along with hawkish remarks by Fed officials suggested that the central bank was in no hurry to cut interest rates amid sticky inflation and a resilient US economy.
The hawkish outlook remains supportive of elevated US Treasury bond yields, which assists the USD in holding above a three-week low touched last Thursday and exerts some downward pressure on the non-yielding Gold price. The downside, however, seems limited in the wake of the risk of a further escalation of military action in the Middle East and the prolonged Russia-Ukraine war, which tends to benefit the safe-haven XAU/USD.
Daily Digest Market Movers: Gold price is pressured by delayed Fed rate cut bets, downside seems limited
- The US Dollar registered its first weekly decline for 2024, which, along with increasing demand for traditional safe-haven assets, lifted the Gold price to over a two-week high on Friday.
- The growing conviction that the Federal Reserve will wait until the June policy meeting before cutting interest rates keeps a lid on any further appreciating move for the non-yielding yellow metal.
- The January FOMC meeting minutes released last week revealed that policymakers generally agreed that they needed greater confidence in falling inflation before considering cutting rates.
- Adding to this, a number of prominent Fed officials recently suggested that imminent interest rate cuts are unlikely as the central bank aims to bring inflation back to the 2% annual target.
- The US Treasury bond yields retreated from a fresh YTD peak touched last week, though remain well supported by the Fed's hawkish outlook and continue to act as a tailwind for the US Dollar.
- Investors, meanwhile, remain concerned about geopolitical risks stemming from conflicts in the Middle East and the Russia-Ukraine war, which could lend some support to the safe-haven XAU/USD.
- Israel expressed its intentions to expand its operations to destroy Hamas amid the uncertainty over a ceasefire, while Russia is preparing a new offensive against Ukraine starting in late May or summer.
- US and UK fighter planes carried out strikes on Houthi sites in Yemen on Saturday amid sustained attacks by the Iran-backed Houthi rebels on commercial vessels in the important Red Sea trade route.
- Ukraine's President Volodymyr Zelensky said on Sunday that Russia is preparing a new offensive against the country starting in late May or summer and Kyiv has a clear battlefield plan of its own.
- Investors now await this week's key US macro data, including the Core PCE Price Index, for clues about the Fed's future policy decision before placing fresh directional bets around the commodity.
Technical Analysis: Gold price bulls still seem to have the upper hand, $2,024 horizontal support holds the key
From a technical perspective, failure to find acceptance above the 50-day SMA and a modest pullback from the $2,041-2,042 intermediate hurdle warrants some caution for bullish traders. That said, oscillators on the daily chart have just started gaining positive traction and support prospects for additional near-term gains. Hence, any subsequent decline is more likely to attract fresh buyers near the $2,024 horizontal support.
A convincing break below, however, will expose the 100-day SMA, currently pegged near the $2,007 area. This is followed by the $2,000 psychological mark, which if broken decisively might shift the bias in favour of bearish traders. The Gold price might then accelerate the slide towards the $1,984 region before eventually dropping to the very important 200-day SMA support near the $1,967-1,966 zone.
On the flip side, bulls need to wait for a move beyond Friday's swing high, around the $2,041-2,042 area, before placing fresh bets. The Gold price might then aim to challenge the next relevant hurdle near the $2,065 supply zone. Some follow-through buying will set the stage for a move towards reclaiming the $2,100 round figure mark for the first time since early December 2023.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | 0.10% | 0.05% | 0.18% | -0.02% | 0.28% | 0.03% | |
| EUR | -0.01% | 0.09% | 0.05% | 0.18% | -0.02% | 0.27% | 0.01% | |
| GBP | -0.10% | -0.09% | -0.04% | 0.09% | -0.11% | 0.18% | -0.08% | |
| CAD | -0.06% | -0.07% | 0.04% | 0.14% | -0.08% | 0.23% | -0.03% | |
| AUD | -0.20% | -0.18% | -0.08% | -0.13% | -0.20% | 0.10% | -0.16% | |
| JPY | 0.01% | 0.00% | 0.16% | 0.07% | 0.21% | 0.30% | 0.03% | |
| NZD | -0.29% | -0.29% | -0.18% | -0.23% | -0.10% | -0.29% | -0.26% | |
| CHF | -0.02% | -0.01% | 0.08% | 0.04% | 0.18% | -0.04% | 0.27% |
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.
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