Gold price consolidates its recent strong gains to record peak, bullish potential seems intact
- Gold price advances to a fresh record peak amid rising bets for a June Fed rate cut.
- The risk-on mood and a modest USD uptick do little to hinder the strong move up.
- The overbought RSI on the daily chart warrants some caution for aggressive bulls.
Gold price (XAU/USD) sticks to its strong intraday gains through the first half of the European session and is currently placed around the $2,257-$2,258 region, just below the record peak touched this Monday. The US Personal Consumption Expenditures (PCE) Price Index released on Friday indicated a moderate rise in inflation and reaffirmed bets that the Federal Reserve (Fed) will start cutting interest rates in June. This, along with geopolitical risks stemming from the protracted Russia-Ukraine war and the recent conflicts in the Middle East, continues to boost demand for the non-yielding yellow metal.
Bulls, however, take a brief pause in the wake of the prevalent risk-on environment and the emergence of some US Dollar (USD) dip-buying, which tends to undermine the safe-haven Gold price. This, in turn, keeps a lid on any further gains amid extremely overbought conditions on the daily chart. The aforementioned fundamental backdrop, however, suggests that the path of least resistance for the XAU/USD remains to the upside. Hence, any corrective decline could be seen as a buying opportunity as trades now look to the release of the US ISM Manufacturing PMI for short-term impetus.
Daily Digest Market Movers: Gold price pauses the bullish run amid a modest USD uptick and risk-on
- The crucial US inflation data released on Friday keeps the door open for a June interest rate cut from the Federal Reserve and continues to drive flows towards the non-yielding Gold price.
- The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in February, and the yearly rate edged up to 2.5% from 2.4%.
- Excluding volatile food and energy prices, the core PCE Price Index – the Fed's preferred inflation gauge – rose by the 2.8% YoY rate as compared to January's upwardly revised reading of 2.9%.
- Following the release, Fed Chair Jerome Powell noted that the latest US inflation data is along the lines of what we would like to see, reaffirming bets for an imminent shift in the Fed's policy stance.
- According to the CME Group's FedWatch Tool, market participants are now pricing in around a 70% probability that the Fed will begin its rate-cutting cycle at the June monetary policy meeting.
- Russia escalates attacks on Ukraine’s energy and other infrastructure in response to the recent Ukrainian long-range drone strikes on oil industry assets deep inside its territory.
- Hamas says the Israeli military is committing a war crime by establishing so-called kill zones across the Gaza Strip where any approaching Palestinian may be shot and killed.
- The global risk sentiment gets a boost from upbeat Chinese data released on Sunday, showing that business activity in the manufacturing sector expanded for the first time in six months.
- This, along with a modest US Dollar uptick, might cap gains for the safe-haven precious metal as traders now look to the US ISM Manufacturing PMI for short-term impetus.
Technical Analysis: Gold price corrective slide is likely to get bought into and remain limited
From a technical perspective, last week’s sustained breakout through the $2,200 mark and a subsequent strength beyond the previous record high, around the $2,223 area, was seen as a fresh trigger for bulls. This, in turn, validates the near-term positive outlook and suggests that the path of least resistance for the Gold price is to the upside. That said, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.
Nevertheless, the Gold price seems poised to climb further towards claiming the $2,300 round-figure mark. Meanwhile, any corrective pullback is more likely to attract fresh buyers near the $2,223 region. This should help limit the downside for the XAU/USD near the $2,200 mark, which should now act as a key pivotal point. A convincing break below the latter might prompt some technical selling and pave the way for some meaningful downfall in the near term.
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
