Gold extends its steady intraday descent amid broad-based USD strength

Gold price edges lower on Friday amid some follow-through US Dollar buying interest.
The Fed’s projected three rate cuts in 2024 might cap the USD and limit losses for the metal.
Traders look forward to Fed Chair Jerome Powell’s speech for short-term opportunities.

Gold price (XAU/USD) continues losing ground through the early part of the European session on Friday and now looks to extend the overnight retracement slide from the record peak. The optimistic outlook for the US economy lifts the US Dollar (USD) to a three-week high, which, in turn, is seen as a key factor undermining the commodity. Apart from this, a generally positive risk tone and hopes for a ceasefire in Gaza exert additional downward pressure on the safe-haven precious metal.

The Federal Reserve (Fed), meanwhile, projected a less restrictive policy stance and three interest rate cuts for 2024, lifting bets for an eventual move at the June policy meeting. This is reinforced by a fresh leg down in the US Treasury bond yields, which might hold back the USD bulls from placing aggressive bets and lend support to the non-yielding Gold price. Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciating move for the XAU/USD.

Daily Digest Market Movers: Gold price remains depressed amid some follow-through USD buying and positive risk tone

The US Dollar looks to build on the previous day's strong recovery from a one-week low touched in the aftermath of the FOMC decision and is seen undermining the Gold price on Friday.
The Federal Reserve upgraded its economic growth projection and now sees real GDP to hit 2.1% by the end of this year as compared to the previous estimate of 1.4% in December.
Moreover, policymakers raised the forecast for core inflation to 2.6% from 2.4% and now see the unemployment rate at 4% for 2024, slightly lower than the 4.1% previously projected.
The outlook, along with an unexpected fall in the US Initial Jobless Claims to 210K last week, acts as a tailwind for the USD, though the projected less restrictive policy might cap the upside.
According to the CME Group's FedWatch Tool, traders are now pricing in around 75% that the Fed will begin cutting interest rates in June, up from around 60% earlier this week.
US Secretary of State Antony Blinken said that gaps are narrowing in the ongoing talks aimed at reaching a ceasefire in Gaza and the release of hostages, boosting investors' confidence.
Fed Chair Jerome Powell's speech later during the early North American session will be looked for more cues about future policy decisions and provide a fresh impetus to the XAU/USD.

Technical Analysis: Gold price needs to break below $2,146-2,145, or weekly low for bears to seize near-term control

From a technical perspective, some follow-through selling below the overnight swing low, around the $2,166 area, or the 100-hour SMA, might expose the $2,146 support or the weekly trough. A convincing break below the latter could drag the Gold price further towards the next relevant support near the $2,128-2,127 zone en route to the $2,100 round figure.

On the flip side, the $2,200 psychological mark now seems to act as an immediate hurdle, above which bulls might aim to challenge the record high, around the $2,223 zone touched on Thursday. Meanwhile, the Relative Strength Index (RSI) on the daily chart – though has eased from higher levels – is still flashing overbought conditions and warrants caution.

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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