Gold surrenders modest intraday gains, downside seems limited amid geopolitical risks

Gold price attracts fresh buyers on Thursday following the previous day’s US CPI-inspired downfall.
Geopolitical risks benefit the safe-haven XAU/USD, though a bullish USD keeps a lid on further gains.
Reduced bets for an early interest rate cut by the Fed might cap gains amid overbought conditions.

Gold price (XAU/USD) struggles to capitalize on its modest itnraday gains and reterats to the lower end of its daily range, around the $2,332-$2,331 area during the first half of the European session. The hotter US Consumer Price Index (CPI) report released on Wednesday fueled speculations that the Federal Reserve (Fed) may delay cutting interest rates. Adding to this, the minutes of the March FOMC meeting indicated that the US central bank might keep interest rates higher for longer, which assists the US Dollar (USD) to stand tall near the YTD peak and acts as a headwind for the non-yielding yellow metal.

Meanwhile, hawkish Fed expectations, along with concerns about the worsening Middle East crisis, continue to weigh on investors' sentiment. This is evident from the prevalent cautious market mood, which should act as a tailwind for the safe-haven Gold price and help limit any meaningful corrective slide from the all-time peak. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD has topped out. Market participants now look to the US macro data – Weekly Initial Jobless Claims and the Producer Price Index (PPI) – and Fedspeak for short-term opportunities.

Daily Digest Market Movers: Gold price bulls seem non-committed amid hawkish Fed expectations, stronger USD

The US Dollar strengthened across the board amid a surge in the US Treasury bond yields in response to a robust inflation report and exerted downward pressure on the Gold price on Wednesday.
The US Bureau of Labor Statistics (BLS) reported the headline Consumer Price Index (CPI) climbed 3.5% on a year-on-year basis and 0.4% compared with the previous month, surpassing expectations.
Excluding volatile food and energy components, the core CPI accelerated to the 3.8% YoY rate, also beating estimates and stoking worries that the Federal Reserve may keep rates higher for longer.
The minutes from the March FOMC meeting revealed that policymakers wouldn’t be cutting rates until they gained greater confidence that inflation was on a steady path back to the 2% annual target.
The markets were quick to react and pushed back the expected timing of a first interest rate cut by the Fed to September from June and the number of 25 basis points cuts this year to under two.
The yield on the rate-sensitive two-year US government bond and the benchmark 10-year Treasury note spiked to their highest level since November last year, pushing the USD to a fresh YTD peak.
Ceasefire talks between Israel and Hamas have yielded no agreement, which, along with a possible Iranian retaliation over a suspected Israeli strike on its embassy in Syria, weigh on investors' sentiment.

Technical Analysis: Gold price could attract some dip-buying at lower levels, $2,300 to act as strong near-term base

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and warrants some caution before placing fresh bullish bets around the Gold price. Hence, any subsequent move-up is likely to face stiff resistance around the $2,365-2,366 area, or the record high touched earlier this week. Some follow-through buying, however, should pave the way for a further near-term appreciation towards the $2,400 round figure mark.

On the flip side, the overnight swing low, around the $2,319 area, now seems to protect the immediate downside ahead of the weekly trough, around the $2,302 region. A convincing break below the latter might prompt some technical selling and drag the Gold price further towards the $2,267-2,265 horizontal support, which should now act as a key pivotal point for short-term traders.

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.

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