- Gold price returns to the red early Wednesday, snapping a three-day uptrend.
- The US Dollar tracks US Treasury bond yields on hawkish Fedspeak and geopolitical risks.
- Gold price recaptures 21-day SMA, RSI stays bullish above the 50 level.
Gold price is posting small losses below $2,360, pausing a three-day recovery early Wednesday. The US Dollar (USD) resurgence acts as a headwind for the Gold price, despite heigthening Middle East tensions and a pick up in Indian physical Gold demand.
Gold price downside appears limited
The US Dollar found fresh buyers in Tuesday’s American trading, as risk sentiment soured on escalating geopolitical tensions between Israel and Gaza. Meanwhile, hawkish comments from Minneapolis Federal Reserve (Fed) President Neel Kashkari drove US Treasury bond yields, in turn, lifting the Greenback from weekly troughs against its major rivals.
Israeli forces shelled a tent camp in a designated “safe zone” west of Rafah and killed at least 21 people, including 13 women and girls, in the latest mass killing of Palestinian civilians. The UN Security Council convened an emergency meeting over Israel’s ground invasion of Rafah as Spain, Ireland and Norway formally recognized the state of Palestine. Investors flocked to the safety in the US Dollar, curbing the appeal of Gold price as a traditional safe-haven asset.
Meanwhile, Kashkari said in a CNBC interview on Tuesday that the Fed should wait for significant progress on inflation before lowering the policy rate. His hawkish remarks also favored the Greenback.
Amidst easing bets of aggressive Fed interest rate cuts this year driving US Treasury bond yields at multi-week highs, Gold buyers have turned cautious early Wednesday. Traders are keenly awaiting Friday’s US PCE inflation data for further clarity on the timings of the Fed rate cuts, which is expected to have a significant impact on the US Dollar’s performance across its competitors and the Gold price.
Falling Chinese Gold imports also weigh negatively on the Gold price. Last week, China Customs data showed that China-bound shipments of gold for non-monetary use fell 30% in April from the previous month.
The Gold price downside, however, appears capped in the near term, as traders stay hopeful that China’s efforts to prop up the country’s property sector could help revive the economic recovery. The International Monetary Fund (IMF) on Wednesday upgraded China’s Gross Domestic Product (GDP) forecast from 4.6% to 5% in 2024.
Meanwhile, the Gold price could also find some dip-buying demand if the Middle East geopolitical tensions escalate, as the Rafah innocent killing is being condemned worldwide. Additionally, the World Gold Council (WGC) said Tuesday that festival gold buying was strong in both urban and rural areas ahead of and during the Akshaya Tritiya festival on May 10.
On the data front, there are no top-tier US economic data, and hence, attention will continue to remain on the speeches from Fed officials. Fed policymakers Williams and Bostic are due to speak later in the North American session. The Fed’s Beige Book will be also published in that session.
Gold price technical analysis: Daily chart
The short-term technical outlook for Gold price remains more or less the same, as buyers yearn for acceptance above the rising wedge support-turned-resistance, now at $2,372, on a daily closing basis.
Gold price maintains its bullish potential, as the 14-day Relative Strength Index (RSI), sits above the 50 level, currently trading near 52.60.
Adding credence to the upside bias, Gold price closed Tuesday above the key 21-day Simple Moving Average (SMA) resistance at $2,353.
A sustained move above the abovementioned barrier at $2,372 would provide legs to the ongoing recovery, calling for a test of the next topside barrier at the May 24 high of $2,384.
Further up, a test of the $2,400 mark will be inevitable.
On the flip side, the immediate support is now aligned at the 21-day SMA at $2,353.
Further south, Gold sellers need to crack the 50-day SMA support at $2,323 to sustain the downtrend toward the $2,300 threshold.
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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