Gold price extends its consolidative price move below $2,200 mark
- Gold price struggles to gain traction and is influenced by a combination of diverging forces.
- Doubts about whether the Fed will cut rates three times this year lift the USD and cap gains.
- A softer risk tone, along with geopolitical risks, lends support to the safe-haven commodity.
Gold price (XAU/USD) attracts some dip-buying during the Asian session on Wednesday and, for now, seems to have stalled the previous day's late pullback from the $2,200 psychological mark. The Federal Reserve (Fed) indicated last week that it remains on track to cut interest rates by 75 basis points in 2024. This, along with a softer risk tone amid concerns about geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East, turns out to be key factors lending some support to the safe-haven precious metal.
The upside for the Gold price, however, seems limited in the wake of some follow-through US Dollar (USD) buying, supported by Tuesday's better-than-expected release of US Durable Goods Orders. The data validated the view that the US economy is in good shape, which, along with sticky inflation, might force the Federal Reserve (Fed) to keep interest rates higher for longer. The outlook remains supportive of elevated US Treasury bond yields and lifts the USD closer to a multi-week top touched last Friday, which might cap gains for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price consolidates as traders await more cues about the Fed’s rate-cut path
- The Federal Reserve last week projected a less restrictive monetary policy going forward and signaled three rate cuts by year-end, which act as a tailwind for the non-yielding Gold price.
- Russia ramped up its attacks on Ukrainian energy infrastructure in response to a spate of recent drone strikes on its oil refineries by the latter, raising the risk of a further escalation of tensions.
- Iran-backed Houthi militants on Tuesday said they had mounted six attacks on ships in the Gulf of Aden and the Red Sea over the past 72 hours, tempering investors' appetite for riskier assets.
- The US Dollar adds to the previous day's modest gains that followed data showing that US Durable Goods Orders data rose by 1.4% in February as compared to the 6.2% slump in the previous month.
- Separately, the Conference Board reported that the US Consumer Confidence Index dipped to 104.7 in March, little changed from the previous month's reading of 104.8 amid fading fears of a recession.
- Furthermore, consumers' inflation expectations ticked up to 5.3% during the reported month from 5.2% in February, which might force the Federal Reserve to keep interest rates higher for longer.
- The outlook keeps the yield on the benchmark 10-year US government bond afloat above the 4.0% threshold and continues to underpin the Greenback, warranting caution for the XAU/USD bulls.
- Traders might also prefer to wait for the release of the US Personal Consumption and Expenditure (PCE) Price Index for more cues about the Fed's policy path and before placing fresh directional bets.
Technical Analysis: Gold price seems poised to move back above the $2,200 mark and retest the record-high
From a technical perspective, the range-bound price action witnessed over the past two weeks or so might be categorized as a bullish consolidation phase against the backdrop of a blowout rally since the beginning of this month. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and support prospects for an eventual breakout to the upside. Some follow-through buying back above the $2,200 mark will reaffirm the constructive setup and allow the Gold price to retest the record high, around the $2,223 region touched last week.
On the flip side, any corrective decline is likely to find some support near the $2,164-2,163 area ahead of the $2,156-2,155 zone and the $2,147-2,146 region. A convincing break below the latter might prompt aggressive technical selling and drag the Gold price further towards the next relevant support near the $2,128-2,127 region en route to the $2,100 round-figure mark. The said handle should act as a strong base for the XAU/USD, which, if broken decisively, will suggest that the XAU/USD has topped out in the near term and will pave the way for deeper losses.
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.