Gold price retakes $3,300 amid a broadly weaker USD and reviving safe-haven demand
- Gold price scales higher for the third straight day amid sustained USD selling bias.
- US fiscal concerns and Fed rate cut bets drag the USD to a nearly two-week trough.
- US-China trade tensions and geopolitical risks further benefit the XAU/USD pair.
Gold price (XAU/USD) prolongs its weekly uptrend for the third straight day and climbs further beyond the $3,300 mark, to a one-and-a-half-week high during the Asian session on Wednesday. The US Dollar (USD) selling bias remains unabated in the wake of US fiscal concerns, which led to a downgrade of the US government's sovereign credit rating last Friday. This, in turn, is seen as a key factor acting as a tailwind for the commodity.
Meanwhile, Federal Reserve (Fed) officials adopted a cautious tone on the US economic outlook. Adding to this, the growing market conviction that the US central bank will lower borrowing costs further this year drags the USD to a nearly two-week low and further the non-yielding Gold price. Moreover, renewed US-China trade tensions support prospects for a further near-term appreciating move for the safe-haven precious metal.
Daily Digest Market Movers: Gold price is underpinned by a combination of factors; seems poised to appreciate further
- US President Donald Trump pushes the House GOP to pass his sweeping tax bill, which could add $3 trillion to $5 trillion to the country’s already hefty debt pile. This comes after Moody’s downgraded the US government’s credit rating last Friday, citing escalating deficits, which continue to weigh on the US Dollar and lift the Gold price above the $3,300 mark on Wednesday.
- Federal Reserve officials on Tuesday raised concerns around the US economic outlook amid the uncertainty tied to Trump’s trade policies. In fact, Cleveland Fed President Beth Hammack sees rising odds of a stagflation scenario and said that the uncertainty over US government trade policies makes it increasingly difficult for policymakers to manage the economy.
- Separately, St Louis Fed President Alberto Musalem noted that businesses and households are holding back from decisions amid uncertainty, which could affect the economic outlook. Adding to this, Atlanta Fed President Raphael Bostic warned that the US economy is going to see a slowdown in activity, and how consumers will respond to another round of inflation.
- Data released last week pointed to signs of easing inflation, while the disappointing US monthly Retail Sales figure increased the likelihood of several quarters of sluggish growth. This should allow the Fed to stick to its policy easing bias. Moreover, traders are currently pricing in the possibility of at least two 25-basis-point rate reductions by the end of this year.
- China accused the US of abusing export control measures and said that the Trump administration is violating Geneva trade agreements. In fact, the US issued guidance warning companies not to use Huawei's Ascend AI chips. China’s Commerce Ministry said this Wednesday that US measures on advanced chips are ‘typical of unilateral bullying and protectionism.’
- CNN, citing several US officials aware of the developments, reported on Tuesday that fresh intelligence gathered by the US indicates that Israel is preparing for potential strikes on Iran's nuclear sites. This keeps geopolitical risks in play, which should provide an additional boost to the XAU/USD pair and support prospects for a further near-term appreciating move.
Gold price could aim to test the next relevant hurdle near the $3,360-3,365 area before aiming to reclaim the $3,400 mark
From a technical perspective, the overnight sustained breakout above the $3,250-3,260 region, which coincided with the 200-period Simple Moving Average (SMA) on the 4-hour chart, was seen as a key trigger for bullish traders. A subsequent move beyond the $3,300 mark and positive oscillators on hourly/daily charts validate the near-term constructive outlook for the Gold price. Hence, some follow-through strength towards testing the next relevant hurdle, around the $3,360-3,365 horizontal zone, looks like a distinct possibility. The momentum could extend further and allow the XAU/USD pair to reclaim the $3,400 round figure.
On the flip side, weakness below the Asian session low, around the $3,285 region, is more likely to attract fresh buyers and remain limited near the $3,260-3,250 resistance-turned-support. A convincing break below the latter, however, might prompt some technical selling and drag the Gold price to the $3,200 mark. This is closely followed by the $3,178-3,177 support, below which the XAU/USD could accelerate the fall towards last week's swing low, around the $3,120 area, or the lower level since April 10, en route to the $3,100 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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