- Gold price gains strong positive traction for the second straight day and hits a fresh all-time high.
- The Fed’s projected three rate cuts this year weigh on the USD and benefit the yellow metal.
- The prevalent risk-on mood prompts some profit-taking amid slightly overbought conditions.
Gold price (XAU/USD) trims a part of its intraday gains to a fresh record high touched during the Asian session on Thursday, albeit holds in the positive territory for the second straight day and currently trades around the $2,200 mark. The Federal Reserve (Fed) indicated that it remains on track to cut interest rates by 75 basis points this year and eased market jitters that the central bank will lower its projection for the number of rate cuts to two amid stick inflation. This drags the US Dollar (USD) away from a two-week high touched on Wednesday and continues to benefit the non-yielding yellow metal.
That said, the prevalent risk-on environment – as depicted by an extension of the recent bullish run across the global equity markets – holds back traders from placing fresh bullish bets around the safe-haven Gold price. This, along with overbought conditions on the daily chart, further contributes to keeping a lid on the precious metal and prompts some profit-taking at higher levels. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD remains to the upside, warranting some caution before positioning for any meaningful corrective fall in the near term.
Daily Digest Market Movers: Gold price remains well supported by the Fed’s rate-cut projection and a weaker US Dollar
- The Federal Reserve on Wednesday maintained its projection of three rate cuts for this year, which weighs on the US Dollar for the second straight day and lifts the Gold price to a fresh all-time peak.
- Policymakers now see the US economy to grow at 2.1% this year compared to 1.4% expected previously, and the jobless rate is seen at 4% by the end of this year, versus 4.1% anticipated in December.
- The Personal Consumption Expenditures Price Index, excluding food and energy, is projected to rise at a 2.6% rate by year-end, compared to the 2.4% increase in the previous quarterly economic projections.
- In the post-meeting press conference, Fed Chair Jerome Powell said that inflation is moving down gradually on a somewhat bumpy road; the recent high inflation readings kept officials on a cautious footing.
- According to the CME Group’s FedWatch Tool, traders are now pricing in a greater chance, around 75%, that the Fed will begin cutting interest rates at the June policy meeting, up from 59% on Tuesday.
- This leads to a modest decline in the US Treasury bond yields, dragging the US Dollar to a one-week low during the Asian session on Thursday and lending some support to the precious metal.
- A slightly overbought condition on the daily chart prompts some profit-taking at higher levels amid a positive tone around the equity markets, which tends to undermine the safe-haven XAU/USD.
Technical Analysis: Gold price bulls need to wait for some consolidation or a pullback before placing fresh bets
From a technical perspective, the overnight strong positive move confirmed a breakout through a bullish flag chart pattern and validated the positive outlook for the Gold price. That said, the Relative Strength Index (RSI) has moved back above the 70 mark, making it prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for any further appreciating move. Nevertheless, the broader setup supports prospects for an extension of the recent well-established strong uptrend witnessed over the past month or so.
Meanwhile, any meaningful corrective decline below the $2,200-2,190 region is likely to attract fresh buyers and remain limited near the $2,160-2,158 horizontal zone. This is followed by the weekly swing low, around the $2,146 area, which, if broken decisively, might prompt some technical selling and drag the Gold price further towards the next relevant support near the $2,128-2,127 zone. The XAU/USD could decline further, eventually dropping to the $2,100 round figure.
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.