- Gold price keeps its range near record highs early Thursday, awaiting Fed Chair Powell.
- The US Dollar stalls the previous turnaround with Treasury bond yields, as risk rebounds.
- Extremely overbought conditions on the daily chart continue to caution Gold buyers.
Gold price extends its consolidative mode just below the record high reached near $2670 on Wednesday, as buyers turn cautious in the lead-up to a raft of speeches from US Federal Reserve (Fed) policymakers due later on Thursday.
Will Powell speech trigger a sustained Gold price correction?
Amongst several Fed officials taking up the rostrum, Fed Chairman Jerome Powell’s pre-recorded opening remarks will hold the key for gauging the size of the next interest rate cut, especially with markets pricing in about a 62% chance that the Fed will reduce the rate by another 50 basis points (bps) in November.
The dovish Fed outlook was further endorsed by the recent commentary from Fed Governor Adriana Kuglar, who said during her overnight appearance that she “strongly supported” the Fed’s decision to cut the interest rates by a half point last week. Kugler added that she “will support additional rate cuts going forward.”
Recent Fedspeak combined with weak US Conference Board (CB) Consumer Confidence and regional activity data ramped up bets for another jumbo rate cut by the Fed at its next policy meeting.
The Fed’s dovishness and China’s stimulus optimism re-emerge early Thursday, checking the previous recovery in the US Dollar (USD) and the US Treasury bond yields while fuelling a minor Gold price uptick. The fate of Gold price hinges on the upcoming Fed commentaries, as traders refrain from placing further bets amid extremely overbought conditions on the daily chart.
Ahead of the Fedspeak, the US Durable Goods Orders, final Q2 Gross Domestic Product (GDP) and the weekly Jobless Claims will provide some trading incentives to Gold price. Risk sentiment will also play a pivotal role, as the focus will shift to Friday’s US Personal Consumption Expenditures (PCE) Price Index release after Powell’s remarks.
Gold price staged a temporary pullback from all-time highs, as the US Dollar staged an impressive rebound from 14-month lows against its major rivals on fading Chinese stimulus-led market optimism. Traders also resorting to taking profits on the USD shorts ahead of the key speech by Fed Chair Jerome Powell.
Gold price technical analysis: Daily chart
Nothing changes for Gold price from a short-term technical perspective, as it remains in extremely overbought territory, suggesting that a meaningful correction could be in the offing.
The 14-day Relative Strength Index (RSI) flirts with the 76 level, at the moment.
If buyers regain lost momentum, acceptance above the record high near $2,670 is critical to unleashing further upside toward the $2,700 barrier.
Conversely, any correction in Gold price will likely test the September 24 low of $2,623, below which the $2,600 threshold will come into play.
Further south, Gold sellers could target the September 20 low of $2,585.
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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