- Gold rallies as investors turn to safety amid worsening geopolitical tensions.
- Weak US labor market data reignites speculation of early Fed rate cuts further driving Gold higher.
- Gold price enters a short-term uptrend with the bias favoring long-holders.
Gold price (XAU/USD) trades almost a percentage point higher in the $2,360s on Friday. The precious metal rises as increasing geopolitical tensions over Gaza solidify its safe-haven appeal.
The upside also results from concerns over the US labor market due to recent data, which have sparked speculation the Federal Reserve (Fed) may lower interest rates sooner than previously expected, increasing the attractiveness of the non-yielding precious metal.
Gold price rises on end of peace talks, US labor market concerns
Gold price rises due to its safe-haven appeal as peace talks between Hamas and Israel in Cairo break down and Israeli armor and military personnel amass around the city of Rafah, the last major urban center in Gaza not reduced to rubble.
The US, meanwhile, is withholding shipments of weapons and military aid to Israel after President Biden warned the country against mounting a full-scale attack on Rafah. Despite the warning, reports have come in of strikes to a mosque and several houses in the city, leading to the deaths of over a dozen people, including women and children, according to Reuters.
US Jobless Claims surprise to the upside
In the US, further evidence of a weakening labor market has reanimated expectations the Federal Reserve will need to cut interest rates sooner than previously thought.
US Initial Jobless Claims data for the week of May 3, released on Thursday, showed a higher-than-expected 231,000 rise when 210,000 had been expected from an upwardly revised 209,000 in the previous week.
This comes on the back of a Nonfarm Payrolls report that showed below-estimated readings for April in almost all key metrics measured.
The data suggests the US economy is struggling under the weight of the currently high interest rates environment and increases speculation the Fed may move to cut rates sooner than previously thought.
Commentary from Federal Reserve officials, however – most recently from Boston Fed President Susan Collins and Minneapolis Fed President Neel Kashkari – has leaned hawkish, with both arguing that inflationary pressures remain too high to consider reducing interest rates.
Major central banks mark a shift in stance
Globally most central banks are either cutting interest rates or signaling a willingness, leading to an environment in which interest rates appear to be peaking and declining – a positive for Gold.
On Wednesday, Sweden’s Riksbank cut interest rates for the first time since 2016, and the number of Bank of England (BoE) officials voting to cut rates on Thursday increased. At its March meeting, the Swiss National Bank (SNB) also opted to cut interest rates.
The European Central Bank (ECB) has all but guaranteed it will cut interest rates in June, and the Reserve Bank of Australia (RBA) accompanied its decision to hold interest rates steady at the last meeting, with dovish rhetoric.
Technical Analysis: Gold price breaks higher, beginning short-term uptrend
Gold price (XAU/USD) has broken through the ceiling of a mini-range and rallied sharply.
A reversal in the sequence of peaks and troughs on the 4-hour time frame chart now suggests the precious metal is in a short-term uptrend, which is biased to extend higher.
XAU/USD 4-hour Chart
The Relative Strength Index (RSI) momentum indicator is overbought, suggesting Gold may be overstretched and could be at risk of a pullback. A move down into neutral territory again would give a sell signal and indicate more clearly a correction. In the meantime, the advice for long-holders is not to add to their positions.
That said, the uptrend remains in progress and the price keeps pushing higher.
The next target to the upside for Gold is at around $2,400, roughly at the height of the April highs.
The bullish trend on both the medium and long-term charts (daily and weekly), overall add a supportive backdrop for Gold.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays in positive territory above 1.0850 after US data
EUR/USD clings to modest daily gains above 1.0850 in the second half of the day on Friday. The improving risk mood makes it difficult for the US Dollar to hold its ground after PCE inflation data, helping the pair edge higher ahead of the weekend.
GBP/USD stabilizes above 1.2850 as risk mood improves
GBP/USD maintains recovery momentum and fluctuates above 1.2850 in the American session on Friday. The positive shift seen in risk mood doesn't allow the US Dollar to preserve its strength and supports the pair.
Gold rebounds above $2,380 as US yields stretch lower
Following a quiet European session, Gold gathers bullish momentum and trades decisively higher on the day above $2,380. The benchmark 10-year US Treasury bond yield loses more than 1% on the day after US PCE inflation data, fuelling XAU/USD's upside.
Avalanche price sets for a rally following retest of key support level
Avalanche (AVAX) price bounced off the $26.34 support level to trade at $27.95 as of Friday. Growing on-chain development activity indicates a potential bullish move in the coming days.
The election, Trump's Dollar policy, and the future of the Yen
After an assassination attempt on former President Donald Trump and drop out of President Biden, Kamala Harris has been endorsed as the Democratic candidate to compete against Trump in the upcoming November US presidential election.