Gold price trades with modest gains near multi-day top, focus remains on US PCE Price Index
- Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying.
- Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
- A positive risk tone further contributes to capping the XAU/USD ahead of the US PCE Price Index.
Gold price (XAU/USD) attracts some buyers for the second straight day on Friday and trades just below the overnight swing high heading into the European session. The US GDP report released on Thursday pointed to a significant loss of growth momentum at the start of 2024 and an unwelcome pickup in inflation, which, in turn, is seen as lending some support to the precious metal. The uptick, however, lacks bullish conviction amid the emergence of fresh US Dollar (USD) buying, bolstered by hawkish Federal Reserve (Fed) expectations.
Investors seem convinced that the US central bank will delay cutting interest rates amid still sticky inflation, which keeps the US Treasury bond yields elevated and helps revive the USD demand. Apart from this, a generally positive tone around the equity markets contributes to capping gains for the safe-haven Gold prices. Traders now look to the release of the US Personal Consumption Expenditures (PCE) Price Index for cues about the Fed’s rate-cut path and determine the next leg of a directional move for the non-yielding yellow metal.
Daily Digest Market Movers: Gold price bulls might refrain from placing fresh bets ahead crucial US inflation data
- The US GDP report released on Thursday showed a sharp deceleration in economic growth and stubborn inflation, which, in turn, is seen as a key factor lending support to the Gold price.
- According to the data published by the US Commerce Department, the world’s largest economy grew by 1.6% at an annualized rate in the first quarter, marking the weakest reading since mid-2022.
- Additional details of the report revealed that underlying inflation rose more than expected, by 3.7%, in the first quarter, reaffirming bets that the Federal Reserve will keep rates higher for longer.
- The yield on the benchmark 10-year US government bond shot to the highest level in more than five months in reaction to the mixed data and acts as a headwind for the non-yielding yellow metal.
- This, along with easing fears about a further escalation of geopolitical tensions in the Middle East, undermines the safe-haven precious metal and should contribute to capping the upside.
- The US Dollar bulls, meanwhile, prefer to wait for more cues about the Fed’s rate cut path, putting the focus squarely on the release of the Personal Consumption Expenditures (PCE) Price Index.
- The crucial inflation data will play a key role in influencing the Fed’s future policy decisions and driving the USD demand, which should help in determining the near-term trajectory for the commodity.
Technical Analysis: Gold price looks to build on positive move beyond the 100-period SMA on the 4-hour chart
From a technical perspective, the XAU/USD, so far, has been struggling to make it through the 100-period Simple Moving Average (SMA) on the daily chart. The said barrier is currently pegged near the $2,345 region and should now act as a key pivotal point amid mixed oscillators on the daily chart. Meanwhile, a sustained strength beyond will be seen as a fresh trigger for bullish traders and lift the Gold price to the next relevant hurdle near the $2,371-2,372 region. The subsequent move up could extend further towards the $2,400 round figure en route to the all-time peak, around the $2,431-2,432 area touched earlier this month.
On the flip side, bearish traders are likely to wait for some follow-through selling and acceptance below the $2,300 mark before placing fresh bets. The Gold price might then extend the corrective decline further towards the $2,260-2,255 intermediate support before eventually dropping to the $2,225 area and the $2,200-2,190 region, representing the 50-day Simple Moving Average (SMA).
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.