Gold price is trading close to the highest level in over two week, just shy of the $2,000 barrier early Tuesday. Gold price is snapping its two-day corrective decline, as persistent weakness in the United States Dollar (USD) alongside the US Treasury bond yields offer a fresh zest to Gold buyers.
The US Dollar languishes in three-month troughs against its major rivals, extending its losing streak amid the ongoing downside momentum in the US Treasury bond yields. The US Treasury bond yields are reeling from the pain of rising dovish US Federal Reserve (Fed) expectations. The recent slew of US economic data cemented bets that the Federal Reserve was done with its interest rate hiking cycle, with the speeches from several Fed officials delivering a balanced tone.
Markets are now pricing over a 50% chance of a 25 basis points (bps) Fed interest rate cut as early as May next year, implying a dovish shift from the narrative of the Fed’s ‘higher interest rate for longer’ view. This dovish pivot has emerged as a key catalyst behind the sell-off in the US Treasury bond yields and the US Dollar, helping Gold price stay afloat above the $1.950 psychological level.
The sentiment around the Fed expectations led the way on Monday, in the absence of top-tier US economic events and Fedspeak, enabling the non-interest-bearing Gold price to regain upside traction.
Gold price also drew support from reports that India’s Gold imports surged 60% in October from a year earlier to a 31-month high. The decline in Gold price ahead of the Diwali festive season in India is seen to have ramped up Gold purchases from jewelers.
Looking ahead, the mid-tier US Existing Home Sales will offer some trading impetus to the US Dollar. However, the main event risk for Tuesday remains the release of the Fed’s November meeting Minutes, which could provide fresh hints on the US central bank’s interest rate outlook.
Gold price managed to close Monday above the 21-day Simple Moving Average (SMA) at $1,975, having dipped briefly below the latter during the day.
This bullish signal seems to offer a fresh boost to Gold buyers, as they make a fresh attempt to regain the $2,000 mark.
The 14-day Relative Strength Index (RSI) is pointing north while above the midline, suggesting that there is more room for the upside.
If Gold buyers find a strong foothold above the $2,000 threshold, the next resistance level could be seen at the November 3 high of $2,004.
Further up, the multi-month high of $2,009 could be put to the test.
On the flip side, Gold sellers need to crack the 21-day SMA at $1,975 to initiate a meaningful downtrend toward the $1,955-$1,950 region.
A sustained break below the last could threaten the November 14 low at $1,944, followed by the ascending 200-day SMA at $1,938.
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.