Gold price seems poised to appreciate further amid Fed rate cut bets, modest USD weakness
|- A combination of supporting factors assists the Gold price to gain positive traction on Thursday.
- Fears of a US recession, geopolitical risks weigh on investors’ sentiment and benefit the XAU/USD.
- Dovish Fed expectations, sliding US bond yields undermine the USD and further lend support.
Gold price (XAU/USD) gains some positive traction on Thursday and snaps a four-day losing streak, albeit lacks follow-through and remains below the $2,400 mark heading into the European session. The lack of bullish conviction, meanwhile, warrants some caution before positioning for any meaningful appreciating move, though the fundamental backdrop seems tilted firmly in favor of bullish traders.
Investors remain concerned about an economic slowdown in China and a possible US recession. This, along with escalating geopolitical tensions in the Middle East, should act as a tailwind for the Gold price. Furthermore, expectations for bigger interest rate cuts by the Federal Reserve (Fed) keep the US Dollar (USD) bulls on the defensive and validates the positive outlook for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price continues to benefit from dovish Fed expectations and geopolitical tensions
- This week's recovery across the global equity markets runs out of steam amid lingering concerns about a US recession and offers some support to the safe-haven Gold price during the Asian session on Thursday.
- Moreover, there are fears that the Iranian attack in retaliation to the assassination of Hamas chief Ismail Haniyeh in Tehran and the subsequent Israeli response could lead to a broader conflict in the Middle East.
- Investors have fully priced in a 25-basis points rate cut by the Federal Reserve in September and have been speculating the possibility of a 50 bps rate cut amid worries about an economic downturn in the US.
- The expectations, meanwhile, trigger a fresh leg down in the US Treasury bond yields and caps on the recent US Dollar recovery from a multi-month low, which further underpins the non-yielding yellow metal.
- Traders now look to the usual Weekly Initial Jobless Claims data from the US for some impetus later today, though the focus remains glued to the US consumer inflation figures, due for release next Wednesday.
Technical Analysis: Gold price bulls need to wait for sustained strength beyond $2,400 before positioning for further gains
From a technical perspective, any further positive move beyond the $2,400 mark is likely to confront some resistance near the $2,410-2,412 supply zone. A sustained strength beyond might trigger a short-covering rally and push the Gold price to the $2,430 intermediate hurdle en route to the next relevant barrier near the $2,448-2,450 horizontal zone. Some follow-through buying should pave the way for a move towards retesting the all-time peak, near the $2,483-2,484 area touched in July. This is closely followed by the $2,500 psychological mark, which if cleared should set the stage for a further near-term appreciating move.
On the flip side, the Gold price might continue to attract buyers around the 50-day SMA support, currently pegged near the $2,368 region. The subsequent slide has the potential to drag the XAG/USD to last week's swing low, around the $2,353-2,352 zone, en route to the $2,344 area, or the 100-day SMA. Some follow-through selling below the latter will be seen as a fresh trigger for bearish traders and pave the way for deeper losses. Given that oscillators on the daily chart have just started gaining negative traction, the commodity might then accelerate the downfall towards the $2,300 round figure.
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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