Gold price remains depressed amid renewed USD buying, looks to US data for fresh impetus
- Gold price fails to build on the previous day's move up and meets with some supply on Thursday.
- A modest USD uptick and the risk-on mood turn out to be key factors weighing on the XAU/USD.
- The uncertainty over the Fed’s rate-cut path and geopolitical tensions should help limit the downside.
Gold price (XAU/USD) struggles to capitalize on the previous day's recovery move from the $2,150 area, or the weekly low and comes under some selling pressure on Thursday. A hot US inflation print fueled speculations that the Federal Reserve (Fed) may delay interest rate cuts. This, in turn, remains supportive of elevated US Treasury bond yields, which assists the US Dollar (USD) to regain some positive traction and turns out to be a key factor exerting downward pressure on the non-yielding yellow metal.
The markets, however, are still pricing in a greater chance that the US central bank will start cutting interest rates in June, which might hold back the USD bulls from placing aggressive bets. Apart from this, geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East might continue to lend some support to the safe-haven Gold price. Investors might also prefer to wait on the sidelines ahead of the highly-anticipated two-day FOMC meeting starting next Tuesday.
Daily Digest Market Movers: Gold price traders seem non-committed and seek more clarity on Fed's rate-cut path
- Hopes of an interest rate cut by the Federal Reserve at the June policy meeting might keep the US Dollar bulls on the defensive and continue to act as a tailwind for the non-yielding Gold price amid geopolitical risks.
- The US CPI report released on Tuesday indicated some stickiness in inflation, which might force the Fed to stick to its higher-for-longer narrative and hold back the XAU/USD bulls from placing fresh bets.
- Investors remain concerned about geopolitical risks stemming from the prolonged Russia-Ukraine war, and the Israel-Hamas conflict, which further seems to benefit the precious metal’s safe-haven status.
- Russian President Vladimir Putin said on Wednesday that it would be considered a significant escalation of the conflict if the US sent troops to Ukraine and that Moscow was ready for a nuclear war.
- An Israeli attack hit a UN aid distribution centre in Rafah, while Lebanon’s Hezbollah said two of its fighters were killed in the Bekaa Valley after Israel launched a strike on the area for a second straight day.
- A report from US news site Politico noted that senior US officials have told their Israeli counterparts that the Biden administration will support the targeting of high-value Hamas targets in and underneath Rafah.
- The uncertainty over the Fed's rate-cut path keeps the US Treasury bond yields elevated, which helps limit any meaningful USD fall and should cap any meaningful appreciating move for the precious metal.
- Traders now look to Thursday's US macro data – monthly Retail Sales, the Producer Price Index and Weekly Jobless Claims – for some impetus, though the focus remains on next week's FOMC policy meeting.
Technical Analysis: Gold price might continue to find decent support near the $2,150 level, or the weekly low
From a technical perspective, any subsequent move up is more likely to confront some resistance near the $2,195 region, or the record peak touched last Friday. Some follow-through buying beyond the $2,200 mark will push the Gold price to uncharted territory and be seen as a fresh trigger for bulls, setting the stage for an extension of the recent blowout rally witnessed over the past two weeks or so.
On the flip side, the $2,155-2,150 area now seems to protect the immediate downside, below which the Gold price could slide to the next relevant support near the $2,128-2,127 zone. The corrective decline could extend further towards the $2,100 round figure, which should act as a strong base for the XAU/USD. A convincing break below might prompt some technical selling and pave the way for deeper losses.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | 0.47% | -0.08% | 0.09% | 0.77% | 0.32% | 0.24% | |
| EUR | -0.04% | 0.44% | -0.13% | 0.05% | 0.74% | 0.28% | 0.21% | |
| GBP | -0.47% | -0.43% | -0.56% | -0.38% | 0.31% | -0.14% | -0.21% | |
| CAD | 0.09% | 0.11% | 0.54% | 0.17% | 0.83% | 0.40% | 0.33% | |
| AUD | -0.09% | -0.05% | 0.37% | -0.18% | 0.68% | 0.23% | 0.16% | |
| JPY | -0.76% | -0.75% | -0.06% | -0.87% | -0.70% | -0.44% | -0.53% | |
| NZD | -0.31% | -0.28% | 0.14% | -0.40% | -0.23% | 0.46% | -0.07% | |
| CHF | -0.25% | -0.21% | 0.22% | -0.33% | -0.16% | 0.51% | 0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Gold FAQs
Why do people invest in Gold?
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.
Who buys the most Gold?
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.
How is Gold correlated with other assets?
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.
What does the price of Gold depend on?
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.
