- Gold price consolidates in a tight range above $2,400 early Wednesday, awaiting Fed Minutes.
- The US Dollar steadies alongside US Treasury bond yields, as risk sentiment remains tepid.
- Bullish RSI on the daily chart continues to keep Gold buyers hopeful.
Gold price is trading back and forth in a tight range above $2,400 early Wednesday, consolidating the previous losses. Gold traders await the Minutes of the US Federal Reserve (Fed) May policy meeting for fresh trading impetus.
Gold price defends $2,400, as Fed Minutes loom
Having kicked off the week on a positive, Gold price retreated from record highs of $2,450, now entering a phase of downside consolidation. Investors assess the implications of the recent cautious stance on inflation and interest rate outlooks, adopted by several Fed officials after April Consumer Price Index (CPI) data from the US fuelled rate cut expectations.
However, bets for aggressive Fed rate cuts this year trimmed significantly after several Fed policymakers this week, raised concerns about the sustainability of the disinflation trend, implying that rates are likely to remain higher for longer.
On Tuesday, Atlanta Federal Reserve President Raphael Bostic said that he is "expecting inflation to decline but relatively slowly, would not expect a rate cut before the fourth quarter." Fed Governor Christopher Waller noted that he needs to see several more months of good inflation data before being comfortable to support an easing in policy.
In early Asia on Wednesday, Cleveland Fed President Mester said that keeping rates restrictive is not that concerning right now, given the strength of the jobs market. Meanwhile, Boston President Susan Collins said that “patience is the right policy for the Fed.”
The Fedspeak leaning in favor of maintaining a restrictive bias continues to keep Gold buyers on the back foot even though the US Dollar trades broadly subdued, tracking the directionless US Treasury bond yields.
Markets refrain from placing fresh directional bets on the US Dollar and the Gold price, anticipating a potential hawkish surprise from the upcoming Fed Minutes. In the lead-up to the FOMC Minutes, more Fedspeak and the mid-tier US Existing Home Sales data will entertain traders.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price is traversing in a potential five-week-long rising wedge formation.
Meanwhile, the 14-day Relative Strength Index (RSI) has turned south but holds in the positive territory, currently near 64.50, suggesting that there is a good chance of a ‘dip-buying’ trade in Gold price.
However, Gold price needs to yield a daily closing above the upside barrier of the wedge at $2,450 to iniate a sustained uptrend. That level is the lifetime high for Gold price.
Recapturing the latter could expose the upside toward the $2,500 level.
However, if Gold buyers fail to regain lost momentum, a fresh drop toward the May 17 low of $2,374.
The next downside target is seen at $2,350, the confluence of the 21-day Simple Moving Average (SMA) and lower boundary of the potential rising wedge pattern.
The last line of defense of Gold buyers is seen at the 50-day SMA at $2,304.
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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