Gold price refreshes all-time highs below $2,300 as geopolitical tensions escalate

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  • Gold price rises further to $2,290 as investors ignore higher bond yields.
  • Fed policymakers see no urgency for rate cuts.
  • Investors await the US ADP Employment Change, Services PMI, and Fed Powell’s speech.

Gold price (XAU/USD) falls after refreshing all-time highs near $2,290 in Wednesday’s European session on multiple tailwinds. The near-term demand for the precious metal is upbeat due to deepening geopolitical tensions in Eastern Europe and the Middle East regions. Escalating geopolitical tensions have increased demand for safe-haven assets, providing strength to bullions. This is offsetting the impact of higher bond yields and waning Federal Reserve (Fed) rate cut expectations for the June meeting.

10-year US Treasury yields rise to 4.37% as Fed policymakers see no need to hurry for rate cuts due to a strong economic outlook and tight labor market conditions. Cleveland Fed Bank President Loretta Mester, “I think the bigger risk would be to begin reducing the funds rate too early.” Fed’s pivot to rate cuts could tighten the labor market further, which will eventually increase wage growth and revamp inflation. Generally, higher bond yields dampen Gold’s appeal as they increase the opportunity cost of holding investment in the latter.

This week, the major event will be the United States Nonfarm Payrolls (NFP) data, which will be published on Friday. The labor market data will influence market expectations for Fed rate cuts in June.

Daily digest market movers: Gold price rises while US Dollar corrects

  • Gold price keeps rising as geopolitical tensions strengthen the safe-haven bid and the US Dollar corrects from fresh four-month highs. Rising geopolitical tensions lead investors towards safe-haven assets such as Gold.
  • In the eastern part of Europe, continuous drone attacks from Ukraine on Russian Oil refineries have resulted in a fresh escalation in the Moscow-Kyiv tensions. US President Joe Biden criticized the event of Ukraine targeting Russia’s Oil infrastructure as it could have drastic consequences for global Oil prices.
  • In the Middle East, Iran vows to retaliate on the deaths of their high-ranking commanders in an attack at the Iranian embassy in Damascus by the Israeli army. This has deepened fears of Iran’s direct entry into Israel-Palestine tensions. Moreover, the killing of seven aid workers in Gaza on Tuesday after an Israeli attack has also raised tensions between Israel and some of its main allies in the West.
  • Meanwhile, the US Dollar Index (DXY) corrects to 104.70 from a four-month high at 105.10 even though Federal Reserve policymakers seem to be leaning towards delaying interest-rate cuts until later than June.
  • Cleveland Fed Bank President Loretta Mester and San Francisco Fed Bank President Mary Daly spoke on Tuesday. They both suggested that the Fed sees more risk in cutting interest rates too early. Fed Mester added: “With labor markets and economic growth both being very solid, we do not need to take that risk.” Both policymakers see three rate cuts as “reasonable” this year.
  • In Wednesday’s session, investors will focus on Fed Chairman Jerome Powell’s speech and the economic data such as ADP Employment Change and the ISM Services PMI data for March. Powell is expected to provide cues about when the central bank will pivot to rate cuts.
  • US private employers are anticipated to have hired 148K job-seekers, slightly higher from 140K payrolls in February. The ISM is expected to report that the Services PMI rose marginally to 52.7 from 52.6 in February.

Technical Analysis: Gold price prints fresh lifetime highs near $2,290

Gold price secures another milestone in Wednesday’s session. The precious metal prints a fresh all-time high near $2,290 after extending above Tuesday’s high of $2,275. However, the yellow metal struggles to continue its six-day winning spell as momentum oscillators have turned extremely overbought. The 14-period Relative Strength Index (RSI) tests 80.00.

The near-term demand is strong as the RSI has been oscillating in the bullish range of 60.00-80.00 for more than a month, making it a “buy on dips” contender. 

All short-to-long term Exponential Moving Averages (EMAs) are sloping higher, suggesting strong near-term demand. On the downside, March 21 high at $2,223 will be a major support area for the Gold price bulls.

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.