Gold price remains depressed near $2,300, over two-week low amid easing Middle East tensions
- Gold price drifts lower for the second successive day amid receding geopolitical tensions.
- Reduced Fed rate cut bets continue to underpin the USD and contribute to the downfall.
- The fundamental backdrop warrants some caution before placing aggressive bearish bets.
Gold price (XAU/USD) maintains its offered tone near its lowest level in over two weeks through the early part of the European session on Tuesday, albeit manages to hold its neck above the $2,300 round figure. Despite the overnight attack on US forces in the Middle East, hopes that the Iran-Israel conflict will not escalate further remain supportive of a generally positive risk tone. Apart from this, growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer amid sticky inflation and a resilient economy undermines demand for the non-yielding yellow metal.
Meanwhile, hawkish Fed expectations keep the US Treasury bond yields elevated and continue to act as a tailwind for the US Dollar (USD), which remains close to its highest level since November touched last week. This is seen as another factor exerting pressure on the Gold price for the second successive day, though speculations that major central banks will cut interest rates this year help limit deeper losses ahead of the flash US PMIs. Traders might also prefer to wait for the release of the Advance US Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index.
Daily Digest Market Movers: Gold price continues to be pressured by receding safe-haven demand and reduced Fed rate cut bets
- Iran signaled that it has no plans to retaliate against the Israeli limited-scale missile strike on Friday, which, in turn, drives flows away from the safe-haven Gold price for the second straight day on Tuesday.
- Stronger-than-expected US payrolls data, along with the hotter consumer price inflation and hawkish comments from Federal Reserve officials, forced investors to scale back their bets for US interest rate cuts.
- The current market pricing suggests that the Fed could start its rate-cutting cycle in September and deliver only 34 basis points, or less than two rate cuts in 2024 as compared to three projected by the central bank.
- The yield on the benchmark 10-year US government bond holds steady just below a five-month high touched last week and continues to act as a tailwind for the US Dollar, further exerting pressure on the XAU/USD.
- Concerns about slowing global economic growth support prospects for synchronized interest-rate cuts by most major central banks in the second half of this year, which, in turn, could lend support to the commodity.
- Traders look to the flash global PMI prints on Tuesday, which, along with the Advance US Q1 GDP report and the US Personal Consumption Expenditures (PCE) Price Index later this week, should provide a fresh impetus.
Technical Analysis: Gold price seems vulnerable below 23.6% Fibo. level, bears await sustained break through $2,300 mark
From a technical perspective, a sustained break and acceptance below the 23.6% Fibonacci retracement level of the February-April rally support prospects for a further intraday depreciating move. That said, oscillators on the daily chart – though they have been losing traction – are still holding in the positive territory and warrant some caution for bearish traders. Hence, it will be prudent to wait for some follow-through selling below the $2,300 mark before positioning for deeper losses. The Gold price might then slide to the $2,260-2,255 area, or the 38.2% Fibo. level, before dropping to the $2,225 intermediate support en route to the $2,200-2,190 confluence, comprising the 50% Fibo. level and the 50-day Simple Moving Average (SMA).
On the flip side, any attempted recovery might now confront immediate resistance near the $2,325 region. A sustained move beyond, however, should allow the Gold price to accelerate the momentum towards the $2,350-2,355 intermediate hurdle en route to the $2,380 supply zone. This is closely followed by the $2,400 round figure, and the all-time peak near the $2,431-2,432 area, which, if cleared, will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent blowout rally witnessed over the past two months or so.
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.