- Gold price clings to previous recovery gains amid market caution.
- The US Dollar and the US Treasury bond yields nurse losses induced by poor US Retail Sales data.
- Gold price challenges bearish commitments, as it prods critical upside hurdle near $2,340.
Gold price is consolidating the previous recovery early Wednesday, lacking a fresh fundamental or technical impetus for further upside. The Juneteenth holiday in the United States (US) is likely to keep liquidity thin around the US Dollar, leaving Gold price sidelined. However, Gold price also risks exaggerated moves due to light trading.
Gold price capitalizes on renewed dovish Fed expectations
On Tuesday, Gold price reversed the early decline, led by a modest downtick in the US Treasury bond yields and staged a decent comeback following the release of the US Retail Sales data. The discouraging data revived US Federal Reserve (Fed) rate cut expectations for September and smashed the US Dollar across the board alongside the US Treasury bond yields.
Data on Tuesday showed US Retail Sales barely rose by 0.1% in May and data for the prior month was revised considerably lower to -0.2%, suggesting economic activity remained lackluster in the second quarter.
Markets are now pricing in a 67% chance of Fed rate reduction in September, compared to a 61% chance a day earlier, CME FedWatch tool showed. Markets are pricing in 48 basis points (bps) of cuts this year.
Meanwhile, Fed policymakers continued to warrant caution on inflation, suggesting to see further signs of cooling to embark upon a policy-easing trajectory.
Chicago Fed President Austan Goolsbee noted on Tuesday that recent inflation figures have been very positive, and Fed officials hope to see further easing in the future. St. Louis Fed President Alberto Musalem said that inflation progress may be a longer, slower process than many market participants currently hope.
Meanwhile, Dallas Fed President Lorie Logan noted that it’s “great to see' CPI data, will need to see 'several more months' to have confidence heading to 2%,” adding that the Fed is “in a good position, to be patient, on policy.”
Looking ahead, Gold price will take cues from the broader market sentiment and the sentiment around the Fed interest rate expectations, in the absence of top-tier macro events and Fedspeak due to a US market holiday.
Gold price technical analysis: Daily chart
Gold price extends its range-play seen so far this week, with sellers trying hard to defend their position.
The Gold price upside is capped by the confluence zone near $2,340, where the 21-day Simple Moving Average (SMA) and the 50-day SMA hang around. On the other hand, the downside appears guarded by the $2,300 mark.
The 14-day Relative Strength Index (RSI) stays bearish below the 50 level, currently near 49.00, keeping Gold sellers hopeful.
Adding credence to the bearish potential, a Bear Cross remains in play after the 21-day SMA crossed the 50-day SMA from above on a daily closing basis last Friday.
The immediate support is now seen at the $2,300 threshold, below which the June 10 low of $2,287 will be tested.
A sustained break below the latter will threaten the May 3 low of $2,277, as sellers aim for the $2,250 psychological barrier.
Alternatively, any rebound in Gold price will need acceptance above the aforementioned key confluence support-turned-resistance near $2,340.
Gold buyers will then flex their muscles toward the May 24 high of $2,364 on their way to the June 7 high of $2,388.
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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