Gold price consolidates recent strong gains to record peak, bullish potential seems intact

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  • Gold price scales a new all-time on Wednesday and benefits from a combination of factors.
  • Rising geopolitical tensions in the Middle East continue to benefit the safe-haven XAU/USD.
  • A weaker USD also lends support, though reduced June Fed rate cut bets might cap gains.

Gold price (XAU/USD) attracts some buyers for the seventh straight day on Wednesday and hits a fresh record peak, around the $2,288-2,289 area during the Asian session amid the flight to safety. Against the backdrop of geopolitical risks stemming from the Russia-Ukraine war and conflicts in the Middle East, the uncertainty over the Federal Reserve’s (Fed) plans to cut rates and a devastating earthquake in Taiwan weigh on investors’ sentiment. This is evident from a generally weaker tone around the equity markets and turns out to be a key factor acting as a tailwind for the safe-haven precious metal.

Meanwhile, the US Dollar (USD) extends the overnight retracement slide from its highest level since February 14 and contributes to the bid tone surrounding the Gold price. Bulls, meanwhile, seem rather unaffected by reduced bets for rate cuts by the Fed, which tends to drive flows away from the non-yielding yellow metal. That said, overstretched conditions on the daily chart cap gains for the XAU/USD and warrant caution before positioning for further gains. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the commodity is to the upside. Hence, any meaningful corrective pullback could be seen as a buying opportunity and is more likely to remain limited ahead of US macro data.

Daily Digest Market Movers: Gold price remains supported by geopolitical risks and modest USD weakness

  • Geopolitical tensions ratcheted up after Israeli strikes on Iran’s embassy in Syria, raising the risk of a further escalation of conflict in the Middle East and lifting the safe-haven Gold price to a fresh record peak on Wednesday.
  • Data released this week showed that the US manufacturing sector expanded in March for the first time since September 2022 and that demand for labor remains elevated, forcing investors to trim their bets for rate cuts in the US.
  • The Labor Department published the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday, which showed that job openings rose modestly from 8.75 million and stayed at a historically high level of 8.76 million in February.
  • Separately, the Commerce Department reported that orders for manufactured goods rebounded in February after two straight monthly declines and rose more than expected by 1.4% amid demand for machinery and commercial aircraft.
  • San Francisco Fed President Mary Daly noted on Tuesday that inflation is gradually decreasing, though she feels no urgency to lower interest rates, and that three rate cuts this year is a projection, not a promise.
  • Cleveland President Loretta Mester said that substantial progress has been made on inflation, though she wants to see more evidence that inflation is headed towards the 2% target before cutting interest rates.
  • This comes on the back of Fed Chair Jerome Powell’s remarks on Friday, saying that there was no need to be in a hurry to cut interest rates and raised doubts if the central bank will cut rates three times this year.
  • The current market pricing indicates a nearly even chance that the Federal Reserve will start cutting rates in June and a total of 65 basis points (bps) rate cut for 2024, lower than the central bank’s projection of 75 bps.
  • The yield on the benchmark 10-year US government bond advanced to a four-month high, which should help limit the downside for the US Dollar and cap gains for the non-yielding yellow metal amid overbought conditions.
  • Investors now look to the US economic docket, featuring the ADP report on private-sector employment and ISM Services PMI, which, along with speeches by influential FOMC members, should provide a fresh impetus.

Technical Analysis: Gold price bulls not ready to give up yet, overbought RSI on the daily chart warrants caution

From a technical perspective, the Gold price has been scaling higher in uncharted territory, and the recent momentum seems strong enough to allow bulls to conquer the $2,300 mark. That said, the Relative Strength Index (RSI) on the daily chart is flashing extremely overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains.

Meanwhile, any corrective decline now seems to find support near the $2,265 area ahead of the $2,250 level. This is followed by the weekly low, around the $2,228 region, which, if broken, might prompt some technical selling and drag the Gold price back toward the $2,200 psychological mark. The latter should act as a key pivotal point, and a convincing break below might shift the near-term bias in favor of bearish traders.

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